L17

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L17

• Supply of a firm

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Producers

• Producers
• Maximize profit
• cost minimization (engineers)
• (IRS, CRS, DRS)
• Today level of production (managers)

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Today and Next Lecture

• Technology for free? Typically fixed costs F
• F does not depend on the level of y
• Optimal supply y
• Following lecture
• Partial equilibrium model (one industry)
• Equilibrium price given N firms
• Free entry number of firms

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Cost Curves

• We add Fixed Cost F (does not depend on y)
• Total cost Fixed Cost Variable Cost
• Average costs ATC, AFC, AVC
• Marginal cost MC

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Example Total Cost
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Example Average Cost
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Average and Marginal Cost

• Does MC always cut ATC at the minimal point?
  (Intuition)
• Minimal Efficient Scale (MES)
• Find MES given

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Equality of ATC and MC at MES
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MES Two methods
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Profit Maximizing y (price takers)

• What is the optimal level of y given p, F
• Secret of happiness (FOC)
• Non-negative profit

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Individual supply and profit
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Individual supply and profit

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