1. L17
Supply of a firm

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

3. 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

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
pall

6. Example: Average Cost
pall

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

8. Equality of ATC and MC at MES
pall

9. MES: Two methods
pall

10. Profit Maximizing y (price takers)
What is the optimal level of y given p, F
Secret of happiness (FOC)
Non-negative profit

11. Individual supply and profit
pall

12. Individual supply and profit
pall