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    MIT14 01SCF11 Rec07

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    aditi sharma
    This document contains notes from a recitation on microeconomics principles. It discusses several key concepts: 1) In the short run, comparing average cost to marginal cost determines if a firm is minimizing costs with a fixed output level. 2) In the long run, profit maximization for a firm with fixed capital is determined by comparing marginal revenue to marginal cost. 3) In the long run, marginal cost equals average cost where long run average cost equals short run average cost, which is demonstrated through a mathematical derivation.

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    MIT14 01SCF11 Rec07

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    This document contains notes from a recitation on microeconomics principles. It discusses several key concepts: 1) In the short run, comparing average cost to marginal cost determines if a firm is minimizing costs with a fixed output level. 2) In the long run, profit maximization for a firm with fixed capital is determined by comparing marginal revenue to marginal cost. 3) In the long run, marginal cost equals average cost where long run average cost equals short run average cost, which is demonstrated through a mathematical derivation.

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    This document contains notes from a recitation on microeconomics principles. It discusses several key concepts: 1) In the short run, comparing average cost to marginal cost determines if a firm is minimizing costs with a fixed output level. 2) In the long run, profit maximization for a firm with fixed capital is determined by comparing marginal revenue to marginal cost. 3) In the long run, marginal cost equals average cost where long run average cost equals short run average cost, which is demonstrated through a mathematical derivation.

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    10 views2 pages

    MIT14 01SCF11 Rec07

    Uploaded by

    aditi sharma
    This document contains notes from a recitation on microeconomics principles. It discusses several key concepts: 1) In the short run, comparing average cost to marginal cost determines if a firm is minimizing costs with a fixed output level. 2) In the long run, profit maximization for a firm with fixed capital is determined by comparing marginal revenue to marginal cost. 3) In the long run, marginal cost equals average cost where long run average cost equals short run average cost, which is demonstrated through a mathematical derivation.

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    Recitation 7 Notes

    14.01SC Principles of Microeconomics

    With output fixed, whether or not cost is minimized can be seen by comparing AC and
    MC.
    With capital fixed, profit maximization is determined by comparison with the condition
    MR=MC.
    In the long-run, LRMC=SRMC at the same Q where LRAC=SRAC.
    This can be seen in the following derivation:
    d/dQ SRAC(Q) = d/dQ LRAC(Q)

    d/dQ (SRTC(Q)/Q) = d/dQ (LRTC(Q)/Q)

    (SRTC (Q)Q SRTC(Q))/Q^2 = (LRTC (Q)Q LRTC(Q))/Q^2

    SRMC (Q) SRAC(Q) = LRMC(Q)- LRAC(Q)

    Thus when SRAC(Q)=LRAC(Q), SRMC(Q)=LRMC(Q).

    Profit = TR-TC
    (d/dQ) = 0 dTR/dQ dTC/dQ = 0

    TR = P*Q

    When perfectly competitive, MR = P


    When not perfectly competitive, MR = dP/dQ

    Short run supply (short run costs, no entry/exit)


    Profit = (P-ATC)Q
    Supply curve chooses Q based on MC, except when price < AVC (nothing is
    produced)

    MIT OpenCourseWare
    http://ocw.mit.edu

    14.01SC Principles of Microeconomics


    Fall 2011

    For information about citing these materials or our Terms of Use, visit: http://ocw.mit.edu/terms.

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