07-6 10 Perfectly Competitive Markets ·Free Entry and Exit -Buyers can easily switch from one supplier to another. -Suppliers can easily enter or exit a market. Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 07-6 Perfectly Competitive Markets • Free Entry and Exit – Buyers can easily switch from one supplier to another. – Suppliers can easily enter or exit a market
1907 07-7 6.2 Profit Maximization Do firms maximize profits? -Possibility of other objectives Revenue maximization Dividend maximization Short-run profit maximization Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 07-7 6.2 Profit Maximization • Do firms maximize profits? – Possibility of other objectives • Revenue maximization • Dividend maximization • Short-run profit maximization
07-8 10 © Profit Maximization Do firms maximize profits? Long-run profit maximization is valid and does not exclude the possibility of altruistic behavior. Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 07-8 Profit Maximization • Do firms maximize profits? – Long-run profit maximization is valid and does not exclude the possibility of altruistic behavior
1907 07-9 Marginal Revenue,Marginal Cost, and Profit Maximization Determining the profit maximizing level of output -Profit()=Total Revenue-Total Cost Total Revenue (TR)=Pg Total Cost (C) -Therefore: TR -TC Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 07-9 Marginal Revenue, Marginal Cost, and Profit Maximization • Determining the profit maximizing level of output – Profit ( ) = Total Revenue - Total Cost – Total Revenue (TR) = Pq – Total Cost (C) – Therefore: π = TR - TC
07-10 Profit Maximization in the Short Run Cost, Total Revenue Revenue, TR(q) Profit ($s per year) Slope of R(g)=MR Output(units per year) Economics ECONOMICS MANAGEMENT SCHOOL,TONGJI UNIVERSITY
Economics ECONOMICS & MANAGEMENT SCHOOL, TONGJI UNIVERSITY 07-10 Profit Maximization in the Short Run 0 Cost, Revenue, Profit ($s per year) Output (units per year) TR(q) Total Revenue Slope of R(q) = MR