Unformatted text preview: Short ‐ Run Supply In determining how much output to supply, the firm's objective is to maximize profits subject to two constraints: the consumers' demand for the firm's product and the firm's costs of production. Consumer demand determines the price at which a perfectly competitive firm may sell its output. The costs of production are determined by the technology the firm uses. The firm's profits are the difference between its total revenues and total costs. Total revenue and marginal revenue. A firm's total revenue is the dollar amount that the firm earns from sales of its output. If a firm decides to supply the amount Q of output and the price in the perfectly competitive market is P , the firm's total revenue is A firm's marginal revenue is the dollar amount by which its total revenue changes in response to a 1-unit change in the firm's output. If a firm in a perfectly competitive market increases its output by 1 1-unit change in the firm's output....
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- Fall '10