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Lecture 12

ECON 2023 Lecture Notes - Lecture 12: Marginal Revenue, Profit Maximization, Taipei MetroPremium

4 pages68 viewsFall 2016

Course Code
ECON 2023
Jeff Cooperstein

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Profit Maximization in the Short Run
Pure competition= price taker! can NOT max profit by raise/ lower price
!Maximize profit by adjusting the output
oChange amount of variable resources (materials, labor)
2 ways to determine level of output maximizing profit
o[1] Compare Total Revenue (TR) & Total Cost (TC)
o[2] Compare Marginal Revenue (MR) & Marginal Cost (MC)
To t a l - R e v e n u e - To t a l - C o s t A p p r o a c h
3 questions of competitive producers
oShould we produce this product?
oIf so, in what amount?
oWhat economic profit (/ loss) will we
Rate of increase in TC= varies w. efficiency of
oAmount of inputs
Current amount of capital
Cost data reflect law of diminishing returns
Each additional unit of input yields less output
than the previous unit
Break-even point
oThe point of TR=TC
(all cost including normal profit)
oOutput at which firm makes normal profit
but NOT economic profit
(TR covers all TC but NO economic
o2 break-even points!
When TR catch up w. TC
When TC goes over TR
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