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Topic 2: firms and profit maximization

A ntitrust Economics 2013. David S. Evans University of Chicago, Global Economics Group. Elisa Mariscal CIDE, ITAM, CPI. Topic 2: firms and profit maximization. Topic 2 | Part 1 21 February 2013. Date. Overview. Consumer Demand.

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Topic 2: firms and profit maximization

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  1. Antitrust Economics 2013 David S. Evans University of Chicago, Global Economics Group Elisa Mariscal CIDE, ITAM, CPI Topic 2: firms and profit maximization Topic 2 | Part 1 21 February 2013 Date

  2. Overview

  3. Consumer Demand Firms consider consumer demand in assessing how much revenue they can earn

  4. Consumer demand

  5. Consumer demand This and other examples are made up. But in practice it is possible to estimate actual demand schedules.

  6. Factors that affect consumer demand

  7. Consumer demand goes up with an increase in the price of Substitutes $ Q The amount of whiskey consumed goes up If the price of a pint goes up then…

  8. Consumer demand goes down with an increase in the price of Complements $ If the price of crisps increases The amount of beer consumed goes down then… Q

  9. Increases in demand come from many sources

  10. Demand Elasticity is a key measure E = % Change in Quantity Demanded % Change in Price

  11. Demand Elasticity and Inelasticity

  12. Example of Elasticity of demand

  13. Other “elasticities” summarize consumer behavior

  14. Demand elasticities and antitrust

  15. Measuring consumer welfare

  16. Consumer welfare is a key concept for antitrust

  17. Costs of Production Firms consider how much it costs them to meet consumer demand

  18. Costs are Critical to Business Decisions

  19. Example of starting a Restaurant

  20. Some costs are sunk costs

  21. Some costs are fixed

  22. Some costs are variable

  23. Average Costs

  24. Marginal Cost

  25. Opportunity Cost

  26. Diminishing marginal returns/Economies of Scale

  27. Graph of economies of scale

  28. Typical costs curves Short run MC Costs ATC AVC AFC Output

  29. Long run costs of production

  30. End of Part 1, next week Part 2

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