微观经济学Chapter06.ppt

Part 3 Revisiting Supply and Demand Chapter 6: Profit Maximization and Supply Chapter 7: Consumption Choice and Demand Chapter 6 Profit Maximization and Supply Cost of Production: Which kinds of cost would be included in production; the shape of cost shape. Profit Maximization: what is profit? Marginal principle leads to profit maximizing behavior How to choose output and how to set price for a firm to maximize its profit? Fixed Costs and Variable Costs Total Cost (TC) Total economic cost of production, consisting of fixed and variable cost. Fixed Cost (FC) Cost that does not vary with the level of output. Variable Cost (VC) Cost that varies as output varies. Fixed versus Sunk Cost Whether this kind of cost can be recovered. Cost of Production Marginal Cost (MC) Increase in cost resulting from the production of one extra unit of output. Average Total Cost (ATC) Firm’s total cost divided by its level of output. Average Fixed Cost (AFC) Fixed cost divided by the level of output. Average Variable Cost (AVC) Variable cost divided by the level of output. Cost of Production The expression of marginal cost The expression of average total cost The expression of AFC and AVC Profit Maximization Profit Difference between total revenue and total cost Maximization of profit leads to the marginal principle Demand and Marginal Revenue Revenue is the quantity a firm sold multiplies the market price of the good. Marginal revenue can be expressed by Competitive Firm Each firm in a competitive industry sells only a small fraction of the entire industry sales The competitive firm is a price taker and knows that its production decision will have no effect on the price of the product. The demand curve facing an individual competitive firm is given by a horizontal line. Profit Maximization by a Competitive Firm Because the demand curve facing a competitive firm is horizontal, so that A perfect