PB HLTH 126 Lecture Notes - Lecture 4: Market Power, Profit Maximization, Marginal Revenue
Document Summary
12:49 pm: firm theory, supply and elasticity of supply. Firms generate a supply curve for each good or service based on maximizing profit, that is, supply is derived (supply is based on production and cost functions) Supply of a medical care service is a function of: Profit maximization: mr (marginal revenue) = mc (marginal cost) Firm supply curves are aggregated to generate a market supply. In the competitive model, the typical firm faces a perfectly elastic demand curve (i. e. , is a price taker) from the market"s equilibrium price. Inelastic supply if: | elasticity | < 1. Unitary elastic supply if: | elasticity | =1. Elastic supply if: | elasticity | > 1. Goals of economic systems: efficiency and equity: goals of economic systems and distinguish between free market and socialist economic systems, economic efficiency and maximizing total surplus from trading.