ECO 304K Chapter Notes -Human Capital, Zip Code, Cash Register
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ECO 304K Full Course Notes
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Chapter 11: costs and profit maximization under competition. Imagine that you are the owner of a stripper oil well and that you want to maximize your profit. Sometimes the firm doesn"t set prices sometimes simply accepts price that is given by the market. You cant sell any oil at a price above the market price and you can sell all your oil at the market price. Thus to maximize profit, you sell at the market price. The more and the better the substitutes, the more elastic the demand. 400,000 oil wells demand for oil is perfectly elastic (flat) A perfectly elastic demand curve for firm output is a reasonable approximation when the product being sold is similar across different firms and there are many buyers and sellers, each small relative to the total market. Demand curves are more elastic in the long run. Long run: the time after all exit or entry has occurred.