ECON 203 Lecture 13: lecture 13
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Document Summary
Ar (x) = tr (x) / x = px. Mr (x) = derivative of total revenue = px. Average revenue and marginal revenue are the same they are both equal to the price. Demand curve facing the firm: horizontal line at the level of the price. Profit = tr lrtc: derivative of ^ = mr (x) lrmc (x) = 0, lrmc (x) = px, same for short run, just change l to s. Extra (marginal) revenue that firm would receive from producing one more unit is less than marginal cost, so profit would go up. Lrmc less than price would mean that the cost of the last unit of output produced is greater than what they"re making on that last unit. Firm cant be maximizing profit if lrmc or srmc are greater than price. Average fixed cost = total fixed cost / output. As output increases, the average fixed cost is falling.
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Related Questions
Assume that a firm in a perfectly competitive market can sell its product for $35 (ie price per unit of output). Furthermore, it faces the following costs:
Output (Q) | Total Cost |
0 | 25 |
1 | 50 |
2 | 100 |
3 | 120 |
4 | 155 |
5 | 190 |
6 | 250 |
7 | 390 |
a) Calculate Total revenue (TR), Marginal Cost (MC), Fixed Cost (FC), Variable cost (VC), and Average Cost (AC).
b) What is the profit-maximizing output level?
c) Is this firm is making a profit or loss at the profit-maximizing output level? Explain.
d) Do you think the firm will continue its production in the short run?
e) What will be the long-run price in this market?