The Maximum

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *Production FunctionWith One Variable Inputp. 233

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *Optimal Use of theVariable InputMarginal Revenue Product of LaborMRPL = (MPL)(MR)Marginal Resource Cost of LaborMRCL =Optimal Use of LaborMRPL = MRCL Should continue to hire L as long as MRPL > MRCL = w= wMVPL = MRPLp. 235MR = P

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *Profit Maximization(MPL)(MR) = MRPL = w(MPK)(MR) = MRPK = r = TR TC = P.Q wL rK Q = f (K,L)

= P. f (K,L) wL rK P is constant P = MRp. 270p.248

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *Optimal Use of Laborp. 236MRPL = (MPL)(MR)MVPLOptimal amount of LMaximum profitsSee: Profit Maximization (slide 24)TR = P.Q

TRMR = Q

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *p.277MC = ATCFigure 7-1U-shape of ATC, AVC, MC = $60

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *Profit Maximization is maximum at Q = 3 MC = MRTotal lossis greatestp.46Max TRMR = 0

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *Perfect Competition: Short-Run EquilibriumProfits = $10 per unitTotal = $40 MC = MRBFEC = Loss = $30

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *MonopolyShort-Run EquilibriumQ* = 500P* = $11Profit = 500 x $3P = a bQTR = (a bQ) Q = aQ bQMR = dTR/dQ = a 2bQ 2b = 2x slope D curve p. 344

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *MonopolyLong-Run EquilibriumQ* = 700P* = $9Profit = CAFBp.345

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *Social Cost of Monopoly(Deadweight loss under monopoly)(GHT)(HENT)EEH = loss to society a less efficient use of resources p. 348

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *Monopolistic CompetitionLong-Run EquilibriumProfit = 0at Q = 4P = $6 Break evenFigure 8-10At E Perfectly compet mkt

Prepared by Robert F. Brooker, Ph.D. Copyright 2004 by South-Western, a division of Thomson Learning. All rights reserved.Slide *Monopolistic CompetitionLong-Run EquilibriumCost without selling expensesCost with selling expensesD and MR are higher then D and MR before selling efforts see Figure 8-10Break evenat A*p. 352Figure 8-11