Lecture 17: Profit Maximization and Supply

TOPIC 1: Long run Cost Curves continued

Recall the original long run average cost curve, how does it relate to returns to scale

Shape of LR Cost Curve, constant returns to scale (LRTC, LRATC)

Shape of LR cost curve, increasing returns to scale (LRTC, LRATC)

Shape of LR cost curve-decreasing returns to scale

TOPIC 2: REVENUES

Basics of Revenue, and what wee assume for our graphical depictions

• We know that π= TR(q)- TC(q). The firm's decision-making involves determining the revenue from selling q and choosing the q that maximizes profit.

• Revenue: the amount of money that the firm gets from the sale of its output. TR= (P)(Q)

• Perfect Competition:

  • We assume that a firm is a price taker, so price is determined by the market

  • We assume that the firm is small. It can sell any q that it wants at the market price.

Total revenue graphically

Marginal Revenue graphically and why does MR=P= AR

Short-run market equilibrium for firms in terms of total costs + profit maximizing condition

Short run market equilibrium for a firm in terms of marginal costs + Profit maximizing condition

Short run market equilibrium for a firm mathematiclly

Example: let SRTC(q)= q squared + 4 and p=10 find the short run equilibrium quantity and cost as thsi point

TOPIC 3:Illustrating Profits on a diagram

General diagram and equation justification

what is profit= $0

What if profit < $0