200 m 100 m 200 m 2gal 200 m average cost total cost

This preview shows page 4 - 7 out of 7 pages.

$200 M 100 M . $200 M $2/gal $200 M 0 Average cost Total cost Marginal cost Fixed cost Quantity (gals/yr) $2.67/gl $800 M $2/gal $200 M 300 M $2.50/gl $1000 M $2/gal $200 M 400 M $3/gal $600 M $2/gal $200 M 200 M $4/gal $400 M $2/gal $200 M 100 M . $200 M $2/gal $200 M 0 Average cost Total cost Marginal cost Fixed cost Quantity (gals/yr) Marginal and average cost 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 0 100 200 300 400 500 Millions of gallons $/gallon MC AC
Image of page 4

Subscribe to view the full document.

5 Marginal and average cost 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 0 100 200 300 400 500 Millions of gallons $/gallon MC AC AC = TC/Q TC = AC x Q Marginal and average cost 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 0 100 200 300 400 500 Millions of gallons $/gallon MC AC Total cost of producing 200M gal/yr is $3/gal x 200 M gal = $600 M AC = TC/Q TC = AC x Q Chapter 9: Monopoly, Oligopoly, and Monopolistic Competition A. Total revenue and marginal revenue B. Total cost, marginal cost and fixed cost C. Profit maximization Proposition: any firm maximizes profit by setting marginal revenue equal to marginal cost First method of proof: calculus TR ± total revenue TC ± total cost TR " TC ± profit Firm maximizes profit by finding derivative of profit with respect to Q and setting it to zero d TR " TC   dQ ± 0 requires d TR   dQ ± d TC   dQ or marginal revenue ± marginal cost
Image of page 5
6 Second method of proof: intuition Suppose the firm wasn’t following our advice, and operated at a level where MR > MC Then if it produced one more unit: its revenues would go up by MR its costs would go up by MC if MR > MC, its revenues would go up by more than its costs if it produced one more unit Conclusion: if MR > MC, firm can increase profits by producing one more unit Or, suppose instead the firm wasn’t following our advice, and operated at a level where MR < MC
Image of page 6

Subscribe to view the full document.

Image of page 7
You've reached the end of this preview.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern