Professional Documents
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Micro Economic Theory
Micro Economic Theory
Chapter 9
PROFIT MAXIMIZATION
Copyright 2005 by South-Western, a division of Thomson Learning. All rights reserved.
2
The Nature of Firms
usually profit-maximization
5
Profit Maximization
dq
dC
dq
dR
q
dq
d
dq
dC
dq
dR
9
Output Choice
q q
q q
dq
q d
dq
d
] ) ( [
) ( revenue marginal
13
Marginal Revenue
,
`
.
|
+
,
`
.
|
+
+
p q
e
p
dq
dp
p
q
p
dq
dp q
p MR
,
1
1 1
,
`
.
|
+
p q
e
p MC
,
1
1
p q
e p
MC p
,
1
If e
q,p
> -1, MC < 0
/
1
/ ) 1 (
1
) , , , ( k q
w
q
SC
k q w v SMC
35
Short-Run Supply
/
1
/ ) 1 (
,
`
.
|
p k
w
q
36
Short-Run Supply
Homogeneity
+
+
w v
p p w v p w v p
, ,
2 2
) , , ( ) , , (
2 1 2 1
43
Envelope Results
) , , (
) , , (
w v p k
v
w v p
) , , (
) , , (
w v p
w
w v p
l
44
Producer Surplus in the
Short Run
1
0
) ( ,...) ( ,...) ( surplus producer
0 1
p
p
dp p q p p
51
Producer surplus
at a market price
of p
1
is the shaded
area
Producer Surplus in the
Short Run
output
price
SMC
p
1
q
1
p
0
52
Producer Surplus in the
Short Run
kk
= f
kk
< 0
ll
= f
ll
< 0
kk
ll
-
kl
2
= f
kk
f
ll
f
kl
2
> 0
We expect l/w 0
l
l
l
60
Single-Input Case
This reduces to
w
f p
l
ll
1
1
Since f
ll
0, l/w 0
61
Two-Input Case
substitution effect
output effect
) , , ( ) , , ( ) , , ( l l l
substitution
effect
output
effect
total effect
69
Important Points to Note:
,
`
.
|
+
p q
e
p MR
,
1
1
72
Important Points to Note: