ECON 301 Lecture Notes - Lecture 13: Marginal Revenue Productivity Theory Of Wages, Production Function, Fixed Cost
6 Apr 2017
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Econ 301 - lecture 13 - profit maximization. A firm uses inputs j = 1 ,m to make products i = 1, n. The competitive firm takes all output & nput prices as given constraints. Economic profit is generated by the production plan. Profit (known as ii) = p1y1 + + pnyn - w1x1 - . E. g. labor units per hr, cars produced per hr. Periodic profit = ii0, ii1, ii2, etc r = rate of interest. Firm"s present value = ii0 + ii1/(1+r) + ii2/(1+r)^2 + ii3/(1+r)^3 Profit function = ii = py - w1x1 - w2x2. This is a iso-profit line - the production level that produces a profit of ii$. Above is an example of short run iso-profit lines. The firm must locate the production plan that generates the highest iso-profit line given the constraint of the production function. The intersection point is the highest achievable profit in the short run.
