Lecture 8 Profit Maximization and Perfect Competition

Lecture 8 Profit Maximization and Perfect Competition -...

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Profit Maximization: Three Stages of Optimization (a) Technological Efficiency (b) Cost Minimization (c) Profit Maximization Effects of Price Ceilings
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(a) Technological Efficiency Firm produces a given output by using the least amount of inputs. Production function includes only efficient production processes
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(b) Cost Minimization Firm produces a given output at the least cost. Cost function: Long run cost function Short run cost function
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(c) Profit Maximization Profit = Total Revenue – Total Cost 3 =TR-TC Optimal level of output at the point where Marginal Revenue = Marginal Cost MR=MC
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Profit Max Profit ( ± ) = TR -TC Q is the decision variable Profit = Total Revenue - Total Cost TR= P(Q) * Q TC(Q) thus ± (Q)
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Profit Maximization & Marginal Analysis: Cost Benefit Analysis Profit is at a maximum when the marginal profit is zero or when MR= MC WHY? What happens when MR> MC or MR<MC Q S ' '
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•I f M R > M C , n production ±n profits f M R < M C , p production profits • Profit maximizing level out output : MR = MC Optimization Process using Marginal Revenue and Marginal Cost
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Lecture 8 Profit Maximization and Perfect Competition -...

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