BIOCH498 Lecture Notes - Lecture 14: Profit Maximization, Marginal Revenue, Perfect Competition

• School: University of Alberta
• Department: Biochemistry
• Course: BIOCH498
• Professor: Brian Lanoil

Document Summary

All firm"s in the market sell a homogenous good. Know whether one supplier is selling for lower price than the other. The industry is characterized by freedom of entry and freedom of exit. Does not control what price to charge. A perfectly competitive firm = a perfectly elastic demand curve. Demand curve p = mr = maximized profits. Profit maximization in the short run = positive. Increased fc = same profit maximizing level. Any firm maximizes its profits at the quantity where mr = mc. Perfectly competitive firm maximizes profits where p = mc. A perfect competition has the same demand curve, average revenue curve, and marginal revenue curve. Suppose a firm produces q units : r = p x q. Suppose now the firm produces q + 1 units : r^ = p x (q+1) Mr = [p x (q+1)] - [p x q] Mr = [p x q + p] - [p x q]