【正文】 e, Marginal Cost, and Profit Maximization Chapter 8 Slide 30 Choosing Output in the Short Run ? We will bine production and cost analysis with demand to determine output and profitability. Chapter 8 Slide 31 q0 Lost profit for qq q* Lost profit for q2 q* q1 q2 A Competitive Firm Making a Positive Profit 10 20 30 40 Price ($ per unit) 0 1 2 3 4 5 6 7 8 9 10 11 50 60 MC AVC ATC AR=MR=P Output q* At q*: MR = MC and P ATC A B C Dorqx AC) (P *? ?D A B C q1 : MR MC and q2: MC MR and q0: MC = MR but MC falling Chapter 8 Slide 32 Would this producer continue to produce with a loss? A Competitive Firm Incurring Losses Price ($ per unit) Output AVC ATC MC q* P = MR B F C A E D At q*: MR = MC and P ATC Losses = P AC) x q* or ABCD Chapter 8 Slide 33 Choosing Output in the Short Run ? Summary of Production Decisions ? Profit is maximized when MC = MR ? If P ATC the firm is making profits. ? If AVC P ATC the firm should produce at a loss. ? If P AVC ATC the firm should shutdown. Chapter 8 Slide 34 The ShortRun Output of an Aluminum Smelting Plant Output (tons per day) Cost (dollars per item) 300 600 900 0 1100 1200 1300 1400 1140 P1 P2 Observations ?Price between $1140 amp。 $1300: q = 600 ?Price $1300: q = 900 ?Price $1140: q = 0 Question Should the firm stay in business when P $1140? Chapter 8 Slide 35 Some Cost Considerations for Managers ? Three guidelines for estimating marginal cost: 1) Average variable cost should not be used as a substitute for marginal cost. Chapter 8 Slide 36 Some Cost Considerations for Managers ? Three guidelines for estimating marginal cost: 2) A single item on a firm’s accounting ledger may have two ponents, only one of which involves marginal cost. Chapter 8 Slide 37 ? Three guidelines for estimating marginal cost: 3) All opportunity cost should be included in determining marginal cost. Some Cost Considerations for Managers Chapter 8 Slide 38 A Competitive Firm’s ShortRun Supply Curve Price ($ per unit) Output MC AVC ATC P = AVC What happens if P AVC? P2 q2 P1 q1 The firm chooses the output level where MR = MC, as long as the firm is able to cover its variable cost of production. Chapter 8 Slide 39 ? Observations: ? P = MR ? MR = MC ? P = MC ? Supply is the amount of output for every possible price. Therefore: ? If P = P1, then q = q1 ? If P = P2, then q = q2 A Competitive Firm’s ShortRun Supply Curve Chapter 8 Slide 40 Price ($ per unit) MC Output AVC ATC P = AVC P1 P2 q1 q2 S = MC above AVC A Competitive Firm’s ShortRun Supply Curve Shutdown Chapter 8 Slide 41 ? Observations: ? Supply is upward sloping due to diminishing returns. ? Higher price pensates the firm for higher cost of additional output and increases total profit because it applies to all units. A Competitive Firm’s ShortRun Supply Curve Chapter 8 Slide 42 ? Firm’s Response to an Input Price Change ?When the price of a firm’s product changes, the firm changes its output level, so that the marginal cost of production remains equal to the price. A Competitive Firm’s ShortRun Supply Curve Chapter 8 Slide 43 MC2 q2 Input cost increases and MC shifts to MC2 and q falls to q2. MC1 q1 The Response of a Firm to a Change in Input Price Price ($ per unit) Output $5 Savings to the firm from reducing output Chapter 8 Slide 44 The ShortRun Production of Petroleum Products Cost ($ per barrel) Output (barrels/day) 8,000 9,000 10,000 11,000 23 24 25 26 27 SMC How much would be produced if P = $23? P = $24$25? The MC of producing a mix of petroleum products from crude oil increases sharply at several levels of output as the refinery shifts from one processing unit to another. Chapter 8 Slide 45 ? Stepped SMC indicates a different production (cost) process at various capacity levels. ? Observation: ? With a stepped MC function, small changes in price may not trigger a change in output. The ShortRun Production of Petroleum Products Chapter 8 Slide 46 ? The shortrun market supply curve shows the amount of output that the industry will produce in the shortrun for every possible price. ? Consider, for simplicity, a petitive market with three firms: The ShortRun Production of Petroleum Products Chapter 8 Slide 47 MC3 Industry Supply in the Short Run $ per unit 0 2 4 8 10 5 7 15 21 MC1 S The shortrun industry supply curve is the horizontal summation of the