Intermediate Microeconomics · free preview
Profit Geometry and the Supply Logic
Profit is the vertical gap between the revenue line and the cost curve in output space, maximized where the slopes agree, and rising price slides the optimum up the marginal cost curve, the supply curve being marginal cost above average variable cost.
1. The gap picture
The gap picture
2. Price changes slide the optimum
Price changes slide the optimum
3. The shutdown question
The shutdown question
4. Revealed profitability
Revealed profitability
5. The geometry of the optimum
In output space, where is profit maximized?
6. The supply slide
In the worked example the price rises from 10 to 12. What does the firm do?
7. The shutdown rule
When does a short-run profit maximizer produce zero output?
8. Revealed profitability tests
What does a revealed-profitability violation look like?
9. Supply at the higher price
For the worked technology, compute optimal output y star when p equals 12, and write the number.
10. The supply slope
The worked supply is y equals p over 4. Compute the output change when p rises by 4, and write the number.
11. Supply at a high price
The worked supply is y equals p over 4. What output does a price of 20 call forth?
12. This firm never shuts down
For this technology, average variable cost is wy and marginal cost is 2wy. Why does the firm never shut down at a positive price?
13. Testing a candidate
The firm is observed using input 4 when the price is 10 and the wage 2. Is it maximizing profit?
14. The price falls back
Price falls from 12 to 8 on this supply curve. What is the output change?
15. Supply at twenty
For the supply y equals p over 4, compute output at p of 20, and write the number.
16. Revenue at the higher price
At p of 12 the firm supplies 3 units. Compute total revenue, and write the number.
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