ECO101H1 Lecture Notes - Perfect Competition
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ECO101H1 Full Course Notes
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Mr = mc => q* is profit - maximizing level of output. If commodity is infinitely divisible, there is a unique profit-maximizing level of output at mr=mc: graphs (implicit, calculus. If commodity is not infinitely divisible, there are two levels of output - before mr=mc and after. Mr=mc - where profit is the same: numerical examples, see text, table 14. 2 (page 295) for an example. Tr > tc => profits => tr/q > tc/q <=> p > atc. Tr = tc => breakeven <=> p = atc. Tr < tc => loss => tr/q p < atc. Profit - maximizing output: 10 (p = mc) Profit: (p - atc) * q = (25 - 20) * 10 = 50. Economic profit: (p - atc) * q (25 - 30) *10 = - 50. Firm produces q=10 which implies that p > avc since firm does not shut down. Question: what would happen if firm raised price to .