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Economics (965)
ECO1104 (229)
David Gray (107)
Lecture

Nov 28 2013.docx

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Department
Economics
Course
ECO1104
Professor
David Gray
Semester
Fall

Description
ECO1104 Nov. 28 , 2013 YUJIE YI #7038840 Chapter 14 Firms in Competitive Markets   Objectives  ­ The demand curve  ­ Condition for profit maximization  ­ Short­run supply curve  ­ Long­run supply curve  The Demand Curve for a Firm in a Competitive Market   In a competitive market, firms are price takers.  ­ Firms take the market price as given.  ­ Firms are willing and able to sell any quantity at the given market price.   Perfectly elastic firm’s demand curve  MR = P for a Firm in a Competitive Market  A competitive firm can keep increasing its output without affecting the market price   So each one­unit increase in Q causes revenue to rise by P, i.e., MR = P  1  4  ­ MR = P is only true for firms in competitive market  Profit Maximization  ­ Question: what Q maximizes the firm’s profit?  ­ To find the answer:  “Think at the margin.”   If increase Q by one unit, then revenue rises by MR and cost rises by MC.   If MR > MC, then increase Q to raise profit   If MR  MC, the increase of Q raises profit.  ­ When MR 
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