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ECN212 Week 06 Note

by: Phoebe Chang

ECN212 Week 06 Note ECN 212

Marketplace > Business > ECN 212 > ECN212 Week 06 Note
Phoebe Chang
GPA 4.28

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Costs and Profit Maximization Under Competition Deadweight Loss Calculation
William Foster
Class Notes
economy, Math, Money, competition, profit, costs, Microeconomics
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This 3 page Class Notes was uploaded by Phoebe Chang on Wednesday February 24, 2016. The Class Notes belongs to ECN 212 at a university taught by William Foster in Spring 2016. Since its upload, it has received 16 views.


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Date Created: 02/24/16
ECN212​ Costs&ProfitMaximizationUnderCompetition SpringSEMESTER2016 Professor:Dr.WilliamFoster EliteNotetaker:Phoebe( Perfect Competition  ● Competitive Market Conditions  ○ A lot of buyers and sellers  ○ Goods produced by different companies are around the same (perfect substitute)  ○ Few or no barriers to entry and exit  ○ No singleseller or buyer has influence on market price  ○ Everyone is selling at the same market price  ● Application  ○ Stable individual demand (perfectly elastic)  ○ Stable market demand and supply  ○ Firms don’get to decide aboprice  ○ Firms doget to decide abo​uantity  ○ Tiny part of the market (individuals) has no effect on the total market  ○ Examples of competitive markets (different brands = same thing)  ■ Gas  ■ Water  ■ Egg  ■ Gold                 1 Maximizing Profit   ● Terms  ○ Profit = Total revenue ­ Total cost  ○ Total revenue = Price ⨉ Quantity  ○ Total cost = Fixed Cost + Variable Cost  ■ Fixed Cost = overhead / operation costs  ■ Variable Cost = input  ○ Marginal revenue  ■ Change in total revenue ÷ Change in quantity   ■ Benefit of the change  ○ Marginal cost  ■ Change in total cost ÷ Change in quantity  ■ Cost of the change  ● Results of selling its output at market price  ○ Maximization depends on firm’s ​output decision  ○ MR = MC = P is maximum benefit  ● Effects  ○ Lower price / revenue increases = elastic  ○ Lower price / revenue decreases = inelastic  ○ Lower price / revenue same = unit elastic                            2 Calculation   ● Consumer Surplus + Producer Surplus + Tax Paid = Total Surplus  ● Consumer tax paid + Producer tax paid = Tax Paid  ● Deadweight loss = (Consumer paid tax ­ producer paid tax)×(Q­Q*)× 0.5      3


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