Lecture 11 - ECONOMICS 100A Professor Dan Acland 09/30/10...

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ECONOMICS 100A Professor Dan Acland 09/30/10 Lecture 11 ASUC Lecture Notes Online is the only authorized note-taking service at UC Berkeley. Do not share, copy, or illegally distribute (electronically or otherwise) these notes. Our student-run program depends on your individual subscription for its continued existence. These notes are copyrighted by the University of California and are for your personal use only. D O N O T C O P Y Sharing or copying these notes is illegal and could end note taking for this course. NO iCLICKER QUIZ ANNOUNCEMENTS Slide 1. Problem Set 3 has been shortened : Announcements a. You no longer have to do Exercise 17.12 2. Problem Set 3 is due next Thursday 3. The midterm will cover material through lecture 12 but will not include lecture 13. The exam will not include any material on Problem Set 3. I have no past exams to give you, but I start working on the exam this weekend. Next Tuesday in lecture, I'll give you a sense of what kinds of questions will be on the exam, what distribution of types of questions, and, in particular because there is a written portion on the exam, I’ll try to give you an idea of what the GSI’s and I am looking for in order for you to get a good grade. And try to remember that this exam is only worth 15% of your grade. LECTURE Slide 1. Modeling decisions of firms : Lecture outline 2. The price-taker assumption 3. Diminishing marginal product, decreasing returns to scale, and increasing marginal cost. 4. Two-input profit maximization So today we will start talking about firms and the supply-side of the economy, which means we’ll be talking about the decisions that firms make. I will start out by talking about what kinds of decisions firms make, because firms make lots of different decisions, and we’re going to be looking at a very narrow set of those. We want to know why those decisions are of particular importance to microeconomists who study markets and decide what is good for society. Then, we’re going to be making an assumption, as we did when we said consumers are price takers (i.e. they don’t have any control over price). It turns out that the price-taker assumptions are not at all innocuous when we talk about firms. We’ll then talk about profit maximization itself. Remember, when we talk about the consumer side, to do Lagrangian optimization, we took first order conditions (FOC) and ignored the second order conditions (SOC). We’re going to have the same problem with firms. We’re going to deal with unconstrained optimization with FOC: We’re going to set all the derivatives equal to 0. We’re going to ignore the second order conditions again. Slide - What kinds of decisions do firms make? : 1. Modeling decisions of firms.
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Lecture 11 - ECONOMICS 100A Professor Dan Acland 09/30/10...

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