ECON 100B Lecture Notes - Lecture 10: Fixed Cost, Profit Margin, Pyrroloquinoline Quinone
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Optimal supply q*(p) if q*> 0, then p = mc (q*) and mc increasing at q* Effect on profit of a price change to find q*(p) look at maximized profit as a function of output price (long run or short run) Pq*(p) c (q*(p)) = * (p; w, r) max q pq c (q) (taken as given by firm) Ac is constant and equal c(1, w, r) We know that if a firm"s profit maximizing quantity q* is positive (an interior solution) then p = mc (q*) But the firm"s optimal choice may not be interior in the short run, the firm is stuck in the industry but could select q = 0 in the long run, the firm can exit the industry altogether. Recall (q) = q[p avc(q) ] f: only q[p avc(q) ] depends on q in the sr, firm wants to maximize q [p avc(q), critical quantity is min q 0 avc (q)