Lecture 14 - Lecture 14 Profit Maximization I While there...

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Dr. Steven Waters Econ 380 Page 1 of 7 Lecture 14 Profit Maximization I While there is no evidence that economists are personally less ethical than members of other disciplines, approaching the world through the dollar sign does make people more cynical. Etzioni, Amitai. “When It Comes to Ethics, B-Schools Get an F,” The Washington Post , August 4, 2002, p. B04. The Economics Outline 1. Total Revenue, Average Revenue & Total Costs 2. Marginal Revenue & Marginal Cost 3. Profit Maximization 4. Elasticity 5. Margins and Elasticity 6. Supply 6.1. Marginal Cost Approach 6.2. Input Demand Approach The Mathematics Outline 1. Algebra & Calculus 2. Homogeneity 3. Envelope Theorem We know bring together what we know about production and costs from producer theory and demand from consumer theory to talk about how a firm maximizes profit. Total Revenue, Average Revenue and Total Costs Total Revenue: q P TR (price times quantity) Downward sloping demand curves suggest that if a firm produces more, the price will fall. In other words, price is a function of quantity. Therefore, it would be more accurate to write the total revenue function with price being a function of quantity in this fashion: q q P TR ) ( [ P ( q ) is Marshallian demand from consumer theory.] Average Revenue: ) ( ) ( q P q q q P q TR AR
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L14: Profit Maximization I Dr. Steven Waters Econ 380 Page 2 of 7 Total Costs: We dealt with this in the previous lectures. For now, lets just recognize that total costs are a function of the quantity produced in the following fashion: ) ( q TC TC Marginal Revenue: dq q dP q q P dq q q P d dq q dTR MR ) ( ) ( ] ) ( [ ) ( Marginal Cost: dq q dTC MC ) ( Profit Maximization
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This note was uploaded on 11/30/2011 for the course STAT 380 taught by Professor Stevens during the Spring '11 term at Brigham Young University, Hawaii.

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Lecture 14 - Lecture 14 Profit Maximization I While there...

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