ECO 405 Lecture Notes - Lecture 11: Profit Maximization, Marginal Revenue, Marginal Cost
Document Summary
The firm"s short-run supply function q p v w k. = =0. 5, v = 3, w = 12, k1 =80. With these parameters, q = 10p/3 and the shutdown price is zero. Is determined by the amount of inputs t chooses to employ. Can be expressed as a function of inputs. Should hire any input up to the point at which. Its marginal contribution to revenue (p*mpl) is equal to the marginal cost(w) of hiring the input. When it uses one more unit of an input. In the price-taking case, mrpl = pfl and mrpk = pfk. Second-order conditions: kk = fkk < 0 ll = fll < 0 kk ll - kl. Capital and labor must exhibit sufficiently diminishing marginal productivities so that marginal costs rise as output expands. They implicitly allow the firm to adjust its output to changing prices.
