3.3.10 – Lecture Notes, Econ 201

3.3.10 – Lecture Notes, Econ 201 - MR = Change...

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3.3.10 – Lecture Notes, Econ 201 NEXT TIME. .. - Complete Chapter 14 - Query: Should a firm shut down in the short run if it is making a loss? - Problem Set #3 due March 17 o Can be downloaded in Angel lessons FIRMS IN A PERFECTLY COMPETITVE MARKET The firm’s total economic profit is total revenue minus total cost. Supply: Total Cost Demand: Total Revenue Must distinguish between demand (revenue) of firm and demand of industry Total revenue is price times quantity sold (Demanded) How does the price get determined? AVERAGE REVENUE (AR) Average Revenue = Total Revenue/Quantity OR (Price)(Quantity) / (Quantity) = PRICE AR = Price Average Revenue: the firm’s total revenue / output. ANGEL. .. The average revenue cur e shows AW as a function of output. The AR curve is the demand curve ANGEL. .. MARGINAL REVENUE Marginal Revenue: the change in total revenue per unit change in output
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Unformatted text preview: MR = Change in TR / Change in Quantity Or (Price)(Change in Quantity) / (Change in Quantity) = PRICE MR = PRICE (**All in Perfect Competition**) The marginal revenue curve shows MR at each level of output. Output is the independent variable and MR Is the dependent variable. For a competitive firm, MR is constant. IMPORTANT POINT In perfect competition, MR and AR are always equal and constant for a firm. The sense of this is that a competitive firm can always sell additional units of output at the going market price. D = P = AR = MR THE STANDARD PROBLEM FOR THE FIRM Objective (Goal): MAXIMIZE PROFITS ALTERNATIVE PROFIT MAXIMIZATION – MARGINAL ANALYSIS Green Rule: Profit maximization where: MR = MC If MR > MC Increase Output If MR < MC Decrease Output If MR = MC, then profit MAX WHAT IS UNCLE JOHN’S MR?...
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This note was uploaded on 10/13/2011 for the course EC 201 taught by Professor Haider during the Spring '10 term at Michigan State University.

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3.3.10 – Lecture Notes, Econ 201 - MR = Change...

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