Total revenue. TR ■TR=PQ ■AR=PQQ=P MR=△(PQAQ =(△P*Q)△Q+P*△Qy△AQ =(△P/Q)Q+P(△Q/△Q) =(△P/Q)Q+P Perfect competition: MR=P=AR△P=0
Total Revenue: TR ◼ TR = PQ ◼ AR = PQ/Q = P ◼ MR = Δ(PQ)/ΔQ = (ΔP*Q)/ΔQ + (P*ΔQ)/ΔQ = (ΔP /ΔQ ) Q + P(ΔQ/ΔQ ) = (ΔP /ΔQ ) Q + P Perfect competition: MR = P = AR (ΔP =0)
Short-Run optimal output level in a perfectly competitive market ■Goa: maximize profit Demand facing the industry: downward sloping Demand facing the firm: horizontal at P (all are price takers, and no one is large enough to affect market price) Optimal output level determined by DEPEMREMC
Short-Run optimal output level in a perfectly competitive market ◼ Goal: maximize profit – Demand facing the industry: downward sloping – Demand facing the firm: horizontal at P (all are price takers, and no one is large enough to affect market price) ◼ Optimal output level determined by D=P=MR=MC
Profit-Maximizing output ■ Decision ru|e n is maximized when mr= mo ( think: why? profit is maximized at the quantity of output where the marginal revenue of the last unit produced is equal to its marginal cost
Profit-Maximizing Output ◼ Decision rule: is maximized when MR = MC (think: why?) profit is maximized at the quantity of output where the marginal revenue of the last unit produced is equal to its marginal cost
Short-Run costs for jennifer and jason's Far Quantity o tomatoes Variable cost Total cost Marginal cost Marginal Net gain of output output of bushel revenue f bushel (bushels) vC TC MC=△TC/△Q f bushel MC SO 16 $18 6 18 12 2 22 36 18 30 42 6 5 58 8 24 102 116
Short-Run Costs for Jennifer and Jason’s Farm