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Econ – Oct 28.docx

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Department
Economics
Course Code
ECON101
Professor
All

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Econ – Oct 28   Total Revenue = R(Q) R(Q)=P(Q) Q Average Revenue – AR=R/Q AR=PxQ/Q AR=P Marginal Revenue MR=change in r/change in q MR=dR/dQ Profit (pi) Pi= R­C Pi(Q) = R(Q) – C(Q) Pi=economic profit Accounting profits = revenue – accounting costs Economic profits = pi = revenue – economic costs Pi=revenue – accounting costs­opportunity costs Pi=accounting profits – opportunity costs (accounting costs=0 is not good, but economic costs it’s alright) Firm’s Objective – to maximize profits  In the Short Run: Rule 1 – a firm shoud produce only if total revenue is equal to or greater than total  variable cost, R greater than or equal to VC, P greater than or equal to AVC (average  variable cost) Rule 2 – A firm is in a profit maximizing position if marginal cost equals marginal  revenue, MR = MC The Theory of 
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