Chapter 13-15: Notes

l MÉTIER thirteen Firm maximizes profits TT TR TO profit Edvenue Total cost TR p Q accounting costs explicit costs economic costs explicit costs implicit costs implicit COSTS Salary you would earn at another job intrest on money in your own bank account rental income if you rented out the space instead of using it Accounting T1 economic T prosit Zach took 400,000 out of the bank and used it to start a cookie business The bank account pays 31 interest per year During the first year of business Zach sold 6 000 boxes of cookies at 2.50 each During the first year of business it required outlays of 9000 accounting T1 economic Tl

a ng n econ mic accountingT TR explicit costs 25 6000 9000 15 000 9000 86000 economic Tl TR explicit costs implicit COSTS 2 S 6000 9000 1400,0007 0.3 19,000 9,000 12,000 I 6000 Marginal Product of Labor MP 9 59 19 1 111 iabor A change in Tells us how much additional output the firm gets for hiring one more worker L of workers Quantity output M PL 0 I 50 9010 50 2 110 119 5,1 60 3 180 18511 70 330 2 31802 80 g 260 338 3,00 270 Diminishing Marginal Product of Labor Eventually The marginal product of labor goes down as the firm hires more workers eventually MRI as LP other thingsequal

other thingsequal The diminishing MPL happens when the firm hires its 5th worker Production Function output FLL I mp hip TDfugggon 79 cost labor OUTPUT COSI TC VC FC total costs van able COSTS Efts VC COSTS That change as output changes usually due to hiring more labor FC are costs and do not change as output changes and have to be paid even if our output is O AI 8 AVC E AFG average total average variable average fixed cost cost ATC AVC AFC

MC ATC or MG Avo AQ AQ marginal cost if quantity increases by one unit how much does the firm's cost increase by IF Q TC FC VC AVC ATC MC Q 060 60 0 95 95 1 80 95 155 60 I no 155 2 2207 60 80 110 22 5 65 195 65 85 35 4 3007 60 za 240 60 75 48 58 70 67 4507 60 390 65 75 199 3 COSTS MO Mcgoes thru The minimum ATC of both ATC and efficient Arc AVC scale Quantity when MCCATC ATC is falling When Mc ATC ATC is rising andwhen MC ATC ATC is at a minimum when MCC AVC Avc is falling when Mc AVC Avc is rising When MC AVC Avc is at a minimum Where MO ATC Lie ATC is at a minimum that point is the efficient scale because costs are at the lowest point and we consider that efficient Short Run us Long Run

g short run some inputs are fixed longrun A there are fixed costs If LR A long run all inputs are variable econdonties scale There are no fixed COSTS ATC If LRATC is ATCa Aye ATCC t as Qt dis economies ofscale K If LR ATC is to scale 793,000 430,000 301,000 62000 793,000 301,000 50,000 4301000 labor orgy 58 V8 go 30 2 41000 pg pg 731,000 431,000 2591060 3 120 30 731,000 1410007 30,000 81000 I 18 728,000 L Q 2 3000 Q44488 3000 Q 30 3 4400 75 30 45 MP E 5800 135 00 75 constant MR 54004400 185 135 50 4400 1400 1400 225 185 40 answer is b MP 1000 TC 100 120 ATC Y eachunit of laborcosts 20 TC VC FC 100 127120 TFC FC 180 40 120 3120 FC EE O w answer b economies of scale arewhen ATCH When QT

dis economies of scale are when ATOM When QT Q 1400 so 3 É 1200 0.50 3 8 To PATCH answer is D Chapter Fourteen Competitive Markets Characteristics of Perfect cooperation 1 Many buyers and many sellers 2 The goods offered for sale are largely the same homogenous 3 Firms can freely enter and exit the market there are no barriers to entry Because of 1 and 2 each buyer and each seller is a price talker The price is taken p market s p pH pH Q no 0 000,00 0 The revenue of a competitive form Total Revenue TR p Q Average Revenue TRIO AR Marginal Revenue MIZ ATRIA a The change in total revenue from selling one more unit For a perfectly competitive firm because they are a pricetaker

p le y mpell i fi m b hey ar price al MR AR P This won't be the case for a monopoly in Ch Is Q P go I 10 to y 10 10 20 10 in economics we assume firms maximize profits E F profit T TR TC QA Q Profit is maximized where MR MC For a perfectly competitive firm profit is maximized where D MC cha only costs me at Q 10W MR MC and we want TO M Q TO MT at Q high Mrs Mc and we want MC to IQ to PTT 01000 QAQ high Q profit is maximized where Mr MC or in Ch 14 P MC Q TR P TC MCIF IT TR TO 0 0 6 3 6 3 I s 1 2 12 0 8 a 4 HOW much will The 3 18 a 6 firm produce to 4 24 maximise profits

3 mom e proves G P MC at 9 5 38 9 7 3938 4 Shut down vs exit shut down is a short run exit is a long run decision decision to not produce to leave the industry anything Mo ATC AVG.sk i Ioosnnaown COST Ofshuttingdown lose TR benefit of shutting down save VC Still have to pay FC shut down if TRE V9 or P C AVC T TR TC A firm's decision to exit P Q Q ATC TI Q P ATC Exit if TICO or it TR TC p ATC TILO if PLATO Enter if IT O or if TR TC TI O if P ATC P ATC TI 0 if D ATC MC Q Q Mc Pa Ift Pi Q

shygoff because Q Q Assume all firms have the same costs and costs don't change of firms fixed in the short run variable in the long nor firm Market s Mmmmmppy Ec s s AI Mo D Qfirm Q Q market Q offirms Q market P min ATC T O Q firm FC 1000 AI 8go Operate if p Are shutdown if paavo Operate and rent out at least one boat answer is b rent out 1 bout T 2098 50 1000 You can never change price in a competitive industry AR YEE for a GMIggsy've Firma zoo Answer is C III AVC 200 Q

AT 0 820 AVC IS P 10 shutdown if PL Ave PI 10 L AVC IS operate at a loss if AVC IPE ATC profit is O if P Atc shut down answer b profit is positive if P ATC M Égq operates when D me a MC P 8 Iggy gg 0 3 for each firm because Q total 3 100 300 answer is b Work practice problems practice exams Chapter 15 Monopoly A Monopoly is a firm that is the sole seller of a product without close substitutes A monopoly has market power and can influence the market price The primary reason for monopolies are barriers to entry Other firms can't enter the market 1 A single firm owns a key resource 2 The government gives a single firm the exclusive right To produce the good patents and copyrighted laws 3 Natural Monopolies a single firm can produce the entire quantity at a lower cost than several forms s ATC is a arrays decreasing Q Monopolies vs Perfect competition ppergycemaetrition p Mfp's this revenue ygainreenue BAHAMAS market monopoly dgmaidrie Q Q2

Miz L P for a'monopoly Where does a monopoly produce to maximize profit Set MR MC D My Me EBAY.FI EF ATC produce in the short run if Atom AVC De min AVC in the long run as long If ATC or DQ monopoly MIice as steep TR TC Is 3 10 4 3 g g 24 3 Is 4 yo Q 2 D 12 To Max profit 2.75 1250 2.50 1200 3125 The welfare cost of a monopoly 312.5 3000 2.5 1000 P MEEEEE Do pp mt.w M CM QM Qc Mp Q Price Discrimination selling the same product at different prices to different buyers perfect or 1st degree price discrimination p charge the person's WTP willingness to pay to each person I Mmmmm p mo

De Ammonian P MC D WED a Mr D Naturalmonopoly Q M Q 4 a perfectlyprice m discriminatory monopolist iMM ÉÉ a Rate of return pricing Ac pricing