×
Log in to StudySoup
Get Full Access to Purdue - ECON 251 - Class Notes - Week 3
Join StudySoup
Get Full Access to Purdue - ECON 251 - Class Notes - Week 3

Already have an account? Login here
×
Reset your password

PURDUE / Economics / ECON 25100 / What is the main goal of a firm?

What is the main goal of a firm?

What is the main goal of a firm?

Description

School: Purdue University
Department: Economics
Course: Microeconomics
Professor: Kelly blanchard
Term: Fall 2014
Tags:
Cost: 25
Name: ECON 251 Week 8 Lecture Notes
Description: Professor Kelly Blanchard's week 8 notes covering lectures 15 and 16.
Uploaded: 02/27/2016
9 Pages 123 Views 1 Unlocks
Reviews


Lecture 15


What is the main goal of a firm?



311116

Goal of a firm= maximize profit

profit=revue-cost faccounting a revenue -explicit costs

-

-

-

profit

.

economic =

profit

revenue - explicit costs-implicit costs]

-

2

1 PE.

.

.

'.

*


What is meant by economic profit?



*

-

supplies is 143,000

-

-

-

-

-

ex) I own aresturant

Reverve = $300,000 accounting profit = 300 1000

costs

143,000 Rent - R 40,000

8157,000 utilitieja 55,000 prcnomic profit = 300,000 Wages = $ 60,000 food = 136,000


How do you find the marginal product of labor?



We also discuss several other topics like When does deviance occur?

-$18,000 Хочеѕ аѕ8, ооо

-893000<a my best alternative is working as a personal chef making $250,000 lyr) If you want to learn more check out How much freedom do you give up to get freedom?

implicit cost of renning resterent economic profitto 7 revenue was below opportunity cost We also discuss several other topics like What are the 3 axioms of probability?

.... 7 best alternatire generate more value

-

economic profit 0 =7 revenue > Opportunity cout .

.

revenue exceeds vatte of any alternative

-

+

economic profit = 0 -> revenue - opportunity cart

-"normal profit".

...in

de ordi

e

-

.

- Don't forget about the age old question of How a substance may be transported across a plasma membrane?

,'

..

.

- -

-

-

-

7

Stud

[Productivity!

Short run = any period of time unen at least the labor

imput is fixed & TODAY'S Topic Kapital

estrepreneurship

lungun = eury period of time when allibere are vanable .

y planning herizon

.

...

Assume

Labor

that laba is the only variable recure right now

Quantity pred MP APE

tota

Total

Produc If you want to learn more check out How to calculate determine what is important to consumers?

58.

33

z

17

29 21/4

1443

wocher 6 made everyone else

produte less marginal product = additional output produced by 1 Lor k whatever resource imel unit of labot If you want to learn more check out What a customer pays to consume the bundle of the “product + service outputs.”?

is changing

mpa

Law of diminishing returns = MP, always eventually

declines as labor increases

.

.

.

.

.

.

.

.

-1.

.

.

.

.

-

..

average product = MPL

total resouces Ifm PL ZAPL 1 APL

addsomething that is higher than the average, then in the average goo up. - Think about exams and claw grade

If MALAR > WAPE If mp = APL = no change in Ape

7 maximum of APL

Graph of meer!

a

In section @ we have diminishing returns because slope is negative

(Quantiy

impu

mp.co

be

Graph of Ape :

Graph of bith mp + AP:

Samax of Abe

Anapin (Quantity)

MPL

- AP

(Quaranty

1

.

FC - ve

.

-

-

..

.

1.

Back to table

IC

AFL

Costs] 0 fixed costs = costs that do not way with output

variable costs = costs that de vary with output FC +VC = Total cost (TC)

limikator L

AVC ATC

Ž *0.4 6.2 = 0.6 58 10 10 20 0,17 + 0.17 = 0.34 3

0.13 + 6.2 = 0.33 20 30

Best OZ + 0.23 = 0.35 10 25 35 0,11

+0.28 am

=0.39 FC = $108 "Fixed" VC= wages XL

DO NO LANGE wage=55

Slonong

.

.

.

.

.

. .

.

.

75 85

0

5

M

.

.

.

-4

-

4

-

Y

r

Average fixed cost > F -7 will never reach zero

in the snert run

-AFC always falls as the Quantity increases Graphot AFC

Although it woks like an Ic, they are not related at all

.

TT. TILPU

+

--

-.

Y

M

1.0.

9

- AFC

,

WWF

-"

Y.

ati

MPER.

'S

'. '

L

iy..

-- Zm

--

-

-

' -...

-9.

T

! Average varicable Cost = ve does not consistantly

- rise or fall

a "ushaf graph" Lạc B - MC Gaga x)

= wage (G) o

= wage

APL Average Total Cost - total cost - FC VC = E +

towshaped graph

À QQ.

. ho Average Total Cost & AVC

- AFC i AB

. AVC . ATC

-ATC> Ave CAVC reachesita minimum

@ a loner Q than ATC .. CATC - AVC) = AFC

b Afl o alwas falling

as Q increases

11

-

-

-

...

-

d'

E

':

-

.

.

. LI.

LE..

-nin At

AVC

C.

.........

HV

IOUNESID M

Study Soup

undC

WY)

-

LL

.-

..

.

T

--

J

S I

I4

.-

-.

h

'.-,.

-

.2.

OR.

lecture 16

3/3/16

o Cost Formulas: new somarginal Cast - Acte

- ACFC TVC) - 4F8

* three different ways to calculak

marginal cost

+ Ave

AQ

@marginal cost - Avey = Alwage xs).

= wage (AL) marginal cost - wage

.

.

1

Q Il me If mc > ATC => ↑ AXC

If mccate => ATC 25 i isto. 2. If mc = At = no change in ATC

zo $o.is

7 minimum of ATC T 25 0.29

- curve 85 30 6.5 sf

me, ATC "hook shaped

.. MATE . .

35

51

m

-

-

--

'

-

.

-'.

.

.

n

H

. - ...

- -

LE .

.

- - -

-

-

|

- - -

-

- -

-

-

-

-

-

- -

-

-

Long Run Costs] .. All inputs are variable!

- All Fixed cost=0 - Total costs 20 Variable cost

-

-

-

-

.-

.

--.

.

- - -

- - -

-

.

-

.

.

-

-

-

-

- • •

.

-,

.

.

-

.

• •

.

7

- +

'

.

-

-

-

-

TF II+

-

+

• •

ATC of

Q, wi medium

like a factory plant 3 options for "plant" size

- Small, medium, large

e * all levels of output

can be achieved from each

of the plants but the E ATC, Atle

ATC

cost to do so will differ

I AQ, just

KATC ATC ATC3 A has to be to the

mm = Small plant left of first

H illa mediumplans ! | intersection

na large plant Leoint - ATC

set Along rien - and of Q, with |--

-average cost

plant

nX

AMAH A K

-

small

plant

YHTH

ILRAC)

* As seen by the graph it is more cost effective to produce Q, with - a small plant

Qz is more cost effective to be produced by a medium sized

- company to Q2 just has to be to the left of the second intersection

point but to the right of the first intersection point An Qiz ös more cost effective to be produced by alarg plant . *The more options a company has, the smoother their

1. Lhat carre

Positive slope =

ldis economies ChaC for acompany

pany I of scale w multiple choices L

L (lhacha) QTY Iscale .. al efficient scale- infinite options)

ENDAST minimum of LRACH (minimizing costs)

L

ATC

-

Ineqative nex

Islope = Teconomies of

4

minimuma

ALLRAChas QA

Example where LRAC has multiple minimum values:

imement

CRAC

minimum

efficient scale

Constant returns toscale

Constant return to scale = more inputs but the

output price stays the same

.

extreme

14 Types of Industry] a perfect Competition :

- lots of firms/competitors

products are all perfect substitute

to consumers do not care which company they

buy from - no barriers to entry

to anyone can compete e monopoly

- one firm - noclose substitutes

- Significant barriers to entry

overy hard to compete ... 6 monopolistic competition :

- lots of firms Competiting - products are differentiated . b products are related but also different

ex) Nike tennis shoes us adidas tennis shoes

Goligopoly

- small number of firms - may or may not have differentiated products

ex) Cerneal industry few companies produce diff products

ex mining all the same mineral . -significant barriers to entry

.

monopolistic

competition

perfect

Oligopoly monopoly competition * monopolistic competition and oligopoly can shift

measure of concentration

concentration ratio = percent of sales accounted »

for by the y largest firms in the industry

ex) 6 firms market 20% 20% 20% 20% 10% 10%

CR=80% * always needs to add up to a total of 100%

ex) 6 firms

30% 30% 10% 10% 10% 10%.

CR=80% doesn't show the actual concentration

of sales for each firm would never - Herfindahl an Hirsch man Index

get so esan I (HHI) = Sum of squared market share of

Processor top so 'firms.com

.

++

-

-

. - -

-

.

..

17

'

L-L

T

-

.

.

. -

-

7

-

-

-

-

-

IHALJ = Sum of

1

+

F

I just Sg all that

- are given

11

old*lex) 20% 20% 20% 20% 10% 10%

HHI = (400)(4) + 100(z)

= 1800 of Azex) 30% 30'1. 10 10% 10% 10%

HHI = 200) (2) + 100) u

... = 2200t how you can clearly see the

. Increase in concentration of

the second set of firms Department of Justice (DOJ) Guidelines:

If they find that after a merger :

CHHIL 1500 =7 unconcentrated and will not

- be amoropoly

•1500 LH HI = 2500 > "grey areal moderately .

tomust show how it will benefit economy

Concentrated

and will be a

... •HHI 72500 = concentrated

. .. . ... monopoly

...

".

+

h

.

HHI

Census of manufactures: . Industry

Ina

I firms CR Breakfast Cereal 35 86.4 mon He Cream 347

52.7 2 Automobiles 174

67.6 perlect machine Shops zo, gas

2425.5

954.1

1448.8 206

TH

+

.

.

competition

*

-

IL

.. FIER

... me

re ......

-

V

M

.

.

.

.

. .

.

- -

1

-

-

.1

Page Expired
5off
It looks like your free minutes have expired! Lucky for you we have all the content you need, just sign up here