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L18 Supply of a firm.

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Presentation on theme: "L18 Supply of a firm."— Presentation transcript:

1 L18 Supply of a firm

2 Producers Producers: Maximize profit cost minimization (engineers)
(IRS, CRS, DRS) Today: level of production (managers) Supply function y(p)

3 Today and Next Lecture Technology for free? Typically fixed costs F
F does not depend on the level of y Cost functions and optimal supply y The following lecture: Partial equilibrium model (one industry) Q: Number of firms

4 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

5 Example: Total Cost

6 Example: Average Cost

7 Example: Marginal Cost

8 Average and Marginal Cost
Does MC always cut ATC at the minimal point? (Intuition) Minimal Efficient Scale (MES) Find MES given pall

9 Equality of ATC and MC at MES

10 MES: Two methods pall

11 QUIZ Assume Q: Minimal efficient scale is equal to A) B) C) D) pall

12 Firm’s supply Decisions: Acquire technology or not (cost F)
If yes, how much to supply (y)

13 Profit Maximizing y (price takers)
What is the optimal level of y given p, F Let

14 Profit Maximizing y (price takers)
Secret of happiness (FOC) Non-negative profit

15 Individual supply and profit

16 Individual supply and profit


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