【正文】 nomic profit if the price = $30? Choosing Output in the Long Run n ZeroProfit ? Economic profit = R = wL rK – wl = labor cost – rk = opportunity cost of capital Choosing Output in the Long Run n ZeroProfit ? If R wL + rk, economic profits are positive ? If R = wL + rk, zero economic profits, but the firms is earning a normal rate of return。Chapter 8 Profit Maximization and Competitive Supply Topics to be Discussed n Profit Maximization n Marginal Revenue, Marginal Cost, and Profit Maximization n Choosing Output in the Short Run n The Competitive Firm’s ShortRun Supply Curve Topics to be Discussed n Choosing Output in the Long Run n The Industry’s LongRun Supply Curve n Perfectly Competitive Markets Introduction n Characteristics of Perfectly Competitive Markets 1) Identical products 2) Individual firms are too small to impact the market 3) No barriers to entry and exit Profit Maximization n Do firms maximize profits? 1) Possibility of other objectives – Revenue maximization – Dividend maximization – Shortrun profit maximization Profit Maximization n Do firms maximize profits? 2) Implications of nonprofit objective – Over the longrun investors would not support the pany – Without profits, survival unlikely Profit Maximization n Do firms maximize profits? 3) Longrun profit maximization is valid and does not exclude the possibility of altruistic behavior. Marginal Revenue, Marginal Cost, and Profit Maximization n Determining the profit maximizing level of output ? Profit ( ) = Total Revenue Total Cost ? Total Revenue (R) = Pq ? Total Cost (C) = Cq ? Therefore: ?)()()( qCqRq ???Profit Maximization in the Short Run 0 Cost, Revenue, Profit $ (per year) Output (units per year) Profit Maximization in the Short Run 0 Cost, Revenue, Profit $ (per year) Output (units per year) R(q) Profit Maximization in the Short Run 0 Cost, Revenue, Profit $ (per year) Output (units per year) R(q) C(q) Profit Maximization in the Short Run 0 Cost, Revenue, Profit $ (per year) Output (units per year) R(q) C(q) A B q0 q* )(q?Marginal Revenue, Marginal Cost, and Profit Maximization n Observations R(q) – Curvature of the line indicating that higher output levels are acpanied by lower prices – R(q) slope = marginal revenue C(q) – C(q) slope = marginal cost n Question: Why is C(q) positive when output is zero? Marginal Revenue, Marginal Cost, and Profit Maximization n Marginal revenue is the additional revenue from producing one more unit of output. n Marginal cost is the additional cost from producing one more unit of output. Marginal Revenue, Marginal Cost, and Profit Maximization 0 Cost, Revenue, Profit $ (per year) Output (units per year) R(q) C(q) A B q0 q* )(q?Marginal Revenue, Marginal Cost, and Profit Maximization n Comparing R(q) and C(q) ? Output levels – 0 q0: C(q) R(q) ? – FC + VC R(q) – MR MC ? Indicates higher profit at higher output 0 Cost, Revenue, Profit $ (per year) Output (units per year) R(q) C(q) A B q0 q* )(q?n e g ati v e?Marginal Revenue, Marginal Cost, and Profit Maximization n Comparing R(q) and C(q) ? Output levels – 0 q0: C(q) R(q) ? – FC + VC R(q) – MR MC ? Indicates higher profit at higher output n Question: Why is profit negative when output is zero? 0 Cost, Revenue, Profit $ (per year) Output (units per year) R(q) C(q) A B q0 q* )(q?n e g ati v e?Marginal Revenue, Marginal Cost, and Profit Maximization n Comparing R(q) and C(q) ? Output levels – q0 q*: R(q) C(q) – MR MC ? Indicates higher profit at higher output – 0 Cost, Revenue, Profit $ (per year) Output (units per year) R(q) C(q) A B q0 q* )(q?i n cr e a s i n g)( q?Marginal Revenue, Marginal Cost, and Profit Maximization n Comparing R(q) and C(q) ? Output levels – q*: R(q)= C(q) – MR = MC – 0 Cost, Revenue, Profit $ (per year) Output (units per year) R(q) C(q) A B q0 q* )(q?m ax i m i ze d)( q?Marginal Revenue, Marginal Cost, and Profit Maximization n Comparing R(q) and C(q) ? Output levels – q*: R(q)= C(q) – MR = MC – n Question: Why would profit be reduced at lower and higher levels of output? 0 Cost, Revenue, Profit $ (per year) Output (units per year) R(q) C(q) A B q0 q* )(q?m ax i m i ze d)( q?Marginal Revenue, Marginal Cost, and Profit Maximization n Comparing R(q) and C(q) ? Output levels – Beyond q*: R(q) C(q) – MC = MR – 0 Cost, Revenue, Profit $ (per year) Output (units per year) R(q) C(q) A B q0 q* )(q?d ec r ea s i n g)( q?Marginal Revenue, Marginal Cost, and Profit Maximization n Therefore, it can be said: Profits are maximized when MC = MR. 0 Cost, Revenue, Profit $ (per year) Output (units per year) R(q) C(q) A B q0 q* )(q?Marginal Revenue, Marginal Cost, and Profit Maximization qCMCqR MRC R??????? ?Marginal Revenue, Marginal Cost, and Profit Maximization orqCqR?????????0q: w h enm a x i m i ze d are Pr o f i t s?M C ( q )M R( q )MCMR??? t h atso0Marginal Revenue, Marginal Cost, and Profit Maximization n The Competitive Firm 1) Price taker 2) Market output (Q) and firm output (q) 3) Market demand (D) and firm demand (d) 4) R(q) is a straight line Marginal Revenue, Marginal Cost, and Profit Maximization Output (bushels) Price $ per bushel Price $ per bushel Outpu