CAS EC 101 Lecture Notes - Lecture 16: Average Cost, Marginal Revenue, Market Power
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Ea(cid:272)h (cid:271)u(cid:468)e(cid:409) and selle(cid:409) is a p(cid:409)i(cid:272)e take(cid:409) Fi(cid:409)ms (cid:272)an (cid:310)(cid:409)eel(cid:468) ente(cid:409) o(cid:409) e(cid:467)it the ma(cid:409)ket. A(cid:461)e(cid:409)a(cid:311)e (cid:409)e(cid:461)enue = total (cid:409)e(cid:461)enue / (cid:408)uantit(cid:468) Ma(cid:409)(cid:311)inal (cid:409)e(cid:461)enue = total (cid:409)e(cid:461)enue / (cid:408)uantit(cid:468) P(cid:409)odu(cid:272)e (cid:408)uantit(cid:468) (cid:462)he(cid:409)e total (cid:409)e(cid:461)enue minus total (cid:272)ost is (cid:311)(cid:409)eatest. The ma(cid:409)(cid:311)inal-(cid:272)ost (cid:272)u(cid:409)(cid:461)e and the (cid:310)i(cid:409)m"s suppl(cid:468) de(cid:272)ision. A(cid:461)e(cid:409)a(cid:311)e total (cid:272)ost (cid:272)u(cid:409)(cid:461)e is u shaped. Mc (cid:272)u(cid:409)(cid:461)e (cid:272)(cid:409)osses the atc (cid:272)u(cid:409)(cid:461)e at the minimum o(cid:310) the atc (cid:272)u(cid:409)(cid:461)e. I(cid:310) mr > mc, (cid:310)i(cid:409)m should increase output. I(cid:310) mc > mr, (cid:310)i(cid:409)m should decrease output. I(cid:310) mr = mc, p(cid:409)o(cid:310)it-ma(cid:467)imizin(cid:311) le(cid:461)el o(cid:310) output. Dete(cid:409)mines the (cid:408)uantit(cid:468) o(cid:310) the (cid:311)ood the (cid:310)i(cid:409)m is (cid:462)illin(cid:311) to suppl(cid:468) at an(cid:468) p(cid:409)i(cid:272)e. A (cid:272)ost that has al(cid:409)ead(cid:468) (cid:271)een (cid:272)ommitted and (cid:272)annot (cid:271)e (cid:409)e(cid:272)o(cid:461)e(cid:409)ed. In the sho(cid:409)t (cid:409)un, (cid:310)i(cid:467)ed (cid:272)osts a(cid:409)e sunk (cid:272)osts. Fi(cid:409)m still has to pa(cid:468) (cid:310)i(cid:467)ed (cid:272)osts. Fi(cid:409)m doesn"t ha(cid:461)e to pa(cid:468) an(cid:468) (cid:272)osts. Same as p(cid:409)i(cid:272)e < a(cid:461)e(cid:409)a(cid:311)e total (cid:272)osts. Same as p(cid:409)i(cid:272)e > a(cid:461)e(cid:409)a(cid:311)e total (cid:272)osts.