New User Special Price Expires in

Let's log you in.

Sign in with Facebook


Don't have a StudySoup account? Create one here!


Create a StudySoup account

Be part of our community, it's free to join!

Sign up with Facebook


Create your account
By creating an account you agree to StudySoup's terms and conditions and privacy policy

Already have a StudySoup account? Login here

Week 7 Notes

by: Eunice

Week 7 Notes PAM 2000


Preview These Notes for FREE

Get a free preview of these Notes, just enter your email below.

Unlock Preview
Unlock Preview

Preview these materials now for free

Why put in your email? Get access to more of this material and other relevant free materials for your school

View Preview

About this Document

IC and BC Monopoly Perfect Competition Decision to Enter/Exit
Intermediate Microeconomics
McDermott, E
Class Notes
PAM, Microeconomics
25 ?




Popular in Intermediate Microeconomics

Popular in Political Science

This 4 page Class Notes was uploaded by Eunice on Saturday March 12, 2016. The Class Notes belongs to PAM 2000 at Cornell University taught by McDermott, E in Fall 2015. Since its upload, it has received 20 views. For similar materials see Intermediate Microeconomics in Political Science at Cornell University.


Reviews for Week 7 Notes


Report this Material


What is Karma?


Karma is the currency of StudySoup.

You can buy or earn more Karma at anytime and redeem it for class notes, study guides, flashcards, and more!

Date Created: 03/12/16
PAM 2000 McDermott Spring 2016 March 8, 2016  solving kinked budget constraints o there will be tangency at each BC  use the two optimality conditions to solve o check the kinks to see if their optimal  COLA o Leontief: just as well of  they would be worse of even with COLA when:  the consumer’s preferred bundle doesn’t match the CPI’s implicit preference ratio of bundle o any other preferences: COLA makes the consumer better of o what conditions lead to worse of?  firms o determine optimal level of production  marginal cost: additional cost of producing one additional unit of a good (also the derivative of total cost)  MC = ∆TC/∆Q = ∆VC/∆Q = w∆L/∆Q = w/(∆Q/∆L) = w/MPL  Q: quantity  VC: variable cost  TC: total cost (fixed + variable)  L: labor  MPL: marginal product of labor o if diminishing, costs are increasing  fixed cost (usually capital) vs. variable cost (VC) o VC: costs that change with the production of every additional unit (usually labor, exception being cases like union contracts) o MC curve cross AC curve at its minimum o profit maximization  profit = total revenue – total cost  discussion of firms as price takers (they don’t decide the price)  profit (π)  π = P(Q) – C(Q) o price: P o cost: C o quantity: Q  π = TR – TC = P(Q) – F – VC o =Q(p-((TC)/Q)) o F: fixed costs  price = AVC, firm is breaking even o >, profit o <, loss  slide 16 for graphical representation  decisions o output decision: firm produces, what output level (Q) maximizes its profits/minimizes losses o shutdown decision: is it more profitable to produce or shut down  π < 0 when P < AVC + AFC  if p<AVC, shut down  p=AVC, π = F  p = ATC, π = 0 o SR  if firm is making a loss and price < AVC  if AVC < F and π is positive  then continue production in the short run so fixed costs can be paid of even if not with an optimal level of production  marginal revenue (MR) is price for profit taking firms (derivative of total revenue)  to determine whether increasing production is profitable, see if MR > MC o profit is maximized where MC = MR  P>MC, next unit is profitable, increase production  P=MC, keep production constant  P<MC, production not optimal, reduce o producer surplus  slide 14 for graphic representation March 10, 2016  perfect competition o short run v. long run  long run: entry/exit decision  no fixed costs  P>ATC, positive profits so firms enter  P<ATC, positive profits so firms exit  in LR equilibrium, P=ATC, profits=0  assuming there are no barriers to entry  long run: firms don’t lose money because if they did they will have exited  shutdown decision in the short run  based on fixed cost  revenue < VC, shutdown o p<AVC o o supply  first law of supply: as price increases, quantity supplied increases, ceteris paribus  same as the MC curve above the ATC curve  elasticity  market supply function (aggregate supply function) o total quantity of good that’ll be suppled at each price o sum of all individual firm supply functions  price elasticity of supply o amount producers will change the quantity suppled in response to a change in price o ε=%∆Q /%sP  positive value  if o ε= infinite, perfectly elastic  infinity> ε>1 : elastic supply o ε=0, perfectly inelastic  1> ε>0 : inelastic supply  second law of supply: the more time that producers have to react to a price change, the more elastically it’ll be supplied  monopoly o governments creates monopoly  patents o monopolies occur if a firm is more efficient or is superior in technology/production  the firm controls an essential facility: a scarce resource rivals need o natural monopoly  the firm can produce the total output of the market at a lower cost than other firms  governments allow monopolies to public utilities o barriers to entry  often it’s the government  patent: an exclusive right granted to the inventor to sell a new product, process, substance, design for a fixed period of time o profit maximization  no close substitutes in the market for a monopoly  monopoly is the price maker  MR=MC still applies  MR curve has twice the slope of monopoly demand curve o deadweight loss: the total surplus that isn’t captured due to an efficient equilibrium not being reached  efficient market: (perfectly competitive) allocation of goods will make it so that the marginal benefit of society is the same as marginal cost  returns to input o increasing: you get more the more you put in  monopolies are like this o decreasing: you get less back each time you put in more


Buy Material

Are you sure you want to buy this material for

25 Karma

Buy Material

BOOM! Enjoy Your Free Notes!

We've added these Notes to your profile, click here to view them now.


You're already Subscribed!

Looks like you've already subscribed to StudySoup, you won't need to purchase another subscription to get this material. To access this material simply click 'View Full Document'

Why people love StudySoup

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."

Amaris Trozzo George Washington University

"I made $350 in just two days after posting my first study guide."

Jim McGreen Ohio University

"Knowing I can count on the Elite Notetaker in my class allows me to focus on what the professor is saying instead of just scribbling notes the whole time and falling behind."


"Their 'Elite Notetakers' are making over $1,200/month in sales by creating high quality content that helps their classmates in a time of need."

Become an Elite Notetaker and start selling your notes online!

Refund Policy


All subscriptions to StudySoup are paid in full at the time of subscribing. To change your credit card information or to cancel your subscription, go to "Edit Settings". All credit card information will be available there. If you should decide to cancel your subscription, it will continue to be valid until the next payment period, as all payments for the current period were made in advance. For special circumstances, please email


StudySoup has more than 1 million course-specific study resources to help students study smarter. If you’re having trouble finding what you’re looking for, our customer support team can help you find what you need! Feel free to contact them here:

Recurring Subscriptions: If you have canceled your recurring subscription on the day of renewal and have not downloaded any documents, you may request a refund by submitting an email to

Satisfaction Guarantee: If you’re not satisfied with your subscription, you can contact us for further help. Contact must be made within 3 business days of your subscription purchase and your refund request will be subject for review.

Please Note: Refunds can never be provided more than 30 days after the initial purchase date regardless of your activity on the site.