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    RM SR

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    clairesundy
    1) The document discusses economic concepts related to markets, firms, and costs including supply and demand, profit maximization, and short-run vs long-run costs. 2) It explains that in competitive markets, the marginal cost curve represents the supply curve of firms and the intersection of marginal cost and marginal revenue determines the profit-maximizing quantity. 3) The document also discusses production functions and how technology affects average and marginal costs, noting that marginal cost must be U-shaped for average total cost to also be U-shaped.

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    RM SR

    Uploaded by

    clairesundy
    7 views3 pages
    1) The document discusses economic concepts related to markets, firms, and costs including supply and demand, profit maximization, and short-run vs long-run costs. 2) It explains that in competitive markets, the marginal cost curve represents the supply curve of firms and the intersection of marginal cost and marginal revenue determines the profit-maximizing quantity. 3) The document also discusses production functions and how technology affects average and marginal costs, noting that marginal cost must be U-shaped for average total cost to also be U-shaped.

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    1) The document discusses economic concepts related to markets, firms, and costs including supply and demand, profit maximization, and short-run vs long-run costs. 2) It explains that in competitive markets, the marginal cost curve represents the supply curve of firms and the intersection of marginal cost and marginal revenue determines the profit-maximizing quantity. 3) The document also discusses production functions and how technology affects average and marginal costs, noting that marginal cost must be U-shaped for average total cost to also be U-shaped.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    7 views3 pages

    RM SR

    Uploaded by

    clairesundy
    1) The document discusses economic concepts related to markets, firms, and costs including supply and demand, profit maximization, and short-run vs long-run costs. 2) It explains that in competitive markets, the marginal cost curve represents the supply curve of firms and the intersection of marginal cost and marginal revenue determines the profit-maximizing quantity. 3) The document also discusses production functions and how technology affects average and marginal costs, noting that marginal cost must be U-shaped for average total cost to also be U-shaped.

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    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
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    of 3

    Econ notes 11/4/08

     If markets are allowed to operate freely, then the existing distribution of income is
    a reflection of human nature.
     Supply curve of output
    o Determined by human nature
     Profit maximization
    o *1
     price = marginal costs (p=mc)
    o this is where profits are maximized
     the marginal cost curve is the supply curve of competitive firm
    o 2
     tc=whl + prm rm + rk
     tcsr=vc + fc
    o *3
     in the short run…introduction of time
     no fixed cost firm can choose to produce a little, a lot, or produce nothing entirely
    (long run)
     short run is defined by a period of time during which firms investment in capital
    cannot be liquidated
     average cost = variable cost/q + fixed cost/q
     (whl + prmRm)/q + rk/q
     rm = raw material
    o *4
     what causes avc to fall then rise is technology…in particular returns to the fixed
    factor
     atc must be u shaped in ncl, cant be declining
     marginal cost
     mc is change in total cost over change in quantity
     what do mc look like?
    o *5
     Extra cost for producing additional good = marginal cost
     Sr = short run
     Technology is seen in the production function

    Econ Notes 11/5/08


     Willingness = ability: households demand output (dq1), supply labor (Shl), supply
    capital (sk), assumed to maximize utility
     Extra costs = extra capital: firms maximize profits (Max-Pi), supply output (sq1),
    demand labor (dhl), demand capital (dk)
     Capital function is both financial and physical
    o Cant explain how you can move back and forth between the two
    o They are assumed to be the same
     Production function its physical
     Firm decides q* not p*. Firms are price takers
     Marginal cost is always in positive quadrant therefore total cost is always
    increasing, where MC decreases is where TC increases at a DECREASING rate
    and where MC increases is where TC increases at an Increasing rate
     Total revenue is price times quantity TR = PD. The graph of this is a straight
    increasing line that starts at the origin. Its slope is price
     Average revenue is price times quantity divided by quantity aka price AR = QP/Q
    = P. This is a straight line protruding out from y axis
     Marginal revenue is change in total revenue divided by change in quantity MR =
    ∆TR/∆Q
    Quantity Price Total Revenue Marginal Revenue
    0 $10 $0 $10
    1 $10 $10
    2 $10 $20 $10
    3 $10 $30 $10
     Firms choose to supply the amount that maximizes profits
    o Pi = TR – TC
    o Pi/Q = TR/Q – TC/Q
    o ∆Pi/∆Q = ∆TR/∆Q - ∆TC/∆Q
     Max distance between total rev and total cost is the point where MProfits = 0 and
    MProfits = 0 where MR = MC
     Normal profits are in the cost curves
     When price is greater than ATC then there are super-profits
     If price drops below average total cost curve then losses occur
     Any time price drops below AVC, that is the shut down point and they should
    produce nothing
     The market supply curve is the summation of all of the marginal cost curves
     What determines output is what determines marginal costs and what determines
    MC is human nature
     Chart p. 86
     “Man shapes his own history”
     Human nature is at the center of the universe
     Competition is a natural phenomenon
     Everything is assumed to take place at the same time in order to work.
    o Households and firms are taking things as given at the same time they’re
    making decisions
     Conclusions of the theory
    o (1) Capitalism promotes equality amongst human beings
     Private property and free markets
    o (2) Markets lead as if by an invisible hand to a perfect balance between
    wants and desires of people in society and scarcity
     No one can be made better off without someone else being made
    worse off
     (1) Each individual in society is believed to maximize utility. Characterized by a
    society with perfect competition. Individual A = Individual B = Individual Z etc
    o Everyone in society is equal to everyone else
     (2) Each individual maximizes utility and you get the law of demand and each
    firm maximizes profits and you get the law of supply.
     Consumer: MRS1,2 = -MU1/MU2 = -P1/P2
     Producer: MRT1,2 = -MC1/MC2 = -P1/P2
     Pareto efficiency: price ratio = slope of frontier
     NCL Theory of Value

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