andrea’s software business how competitive firm sets its output
TRANSCRIPT
Andrea’s software business
How competitive firm sets its output
$70
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Pri
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Quantity
$56
AFC
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AFC
AVC
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AFC
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ATC
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AFC
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MC
D
• Why is Mr. Couch making me add all these stupid columns, that aren’t even on the stupid handout, and do all these stupid calculations, and make this stupid graph??? (#@*!#@)
• For one thing, at six units of output, my profit increases from $35 to $51!
• $16 !!! - That’s my biggest profit margin increase isn’t it?
• Why wouldn’t I stop there?
• Ah grasshopper – the past doesn’t matter, today is the first day of the rest of your life.
Economists do think on the margin, but marginal thinking is forward thinking
• Where ever you are is where you are –and does the benefit of producing one more exceed the cost of producing one more?
• If yes, produce one more
• If no, stop
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$48.12
Price = demand (D) = marginal revenue (MR) = average revenue (AR)
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DTotal economic PROFIT ($7.88 x 8 = $63)
$48.1
Always proceed until
MC = MRMarginal Cost = Marginal Revenue
That is when you maximize your profit!
And get this…
• for a firm • when Price equals Demand
and equals Marginal Revenue• And price equals marginal
cost, • then quantity demanded
equals quantity supplied!!!• That’s why supply meets
demand in equilibrium!
• Oh! My Gosh! It all comes together – I could just jump for joy
Questions coming up …
• What if price drops below ATC minimum?
• What if price drops below AVC minimum?
• Will a change in fixed cost affect output?
• Will a change in variable cost affect output?
• And why is that marginal cost curve decreasing and the increasing anyway?