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Lecture 19

CAS EC 101 Lecture Notes - Lecture 19: Market Power, Profit Maximization, Perfect CompetitionPremium


Department
Economics
Course Code
CAS EC 101
Professor
Bruce Watson
Lecture
19

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EC101: Lecture 15
Revenue
How is price determined for a perfectly competitive firm?
P* on the market graph is the perfectly elastic demand curve, P* = D, on the firm graph
- A perfectly competitive curve is called a price taker
- P* = D = average revenue = MR
o For a perfectly competitive curve
Profit
- Profit = pi = TR TC
Profit maximization condition
- For continuous quantities, produce that q for which MR = MC
- Continuous quantities: amounts of goods (grams of weed)
Determining profit maximizing quantity
- At q*, MR = MC
- At qA, MC > MR
- At qB, MR > MC
for discrete quantities, produce highest q for which MR greater than or equal to MC
example: digital toiletpaper.com
price = $65
q
TC
MC
0
100
1
150
50
2
170
20
3
190
20
4
240
50
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