ECO 2111 Lecture Notes - Lecture 3: Opportunity Cost, Production Function, W. M. Keck Observatory
23 Feb 2017
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Unit #2 perfectly competitive goods and labour markets. A competitive firm can increase its output without affecting the market price: so each one-unit increase in q causes revenue to rise by p (mr>0 and mr=p) If the firm increases q by one unit, cost also rises (mc is positive and slopes upwards) A competitive firm maximizes profit by producing the quantity where p=mc in the short run, fc>0 and profit greater than or less than 0 in the long run, fc=0 and profit=0. If p>mc, then the profit-maximizing firm will increase q to raise profit. It will continue to increase q until p=mc. If pp: so, reduce q to raise profit. At q1, mc=p: changing q in either direction would lower profit.
