Model

This module is composed of two units. In the first one, Profit Maximization and Competitive Supply, we present a short but very useful introduction to mathematical concepts, namely the derivative technique, used in the economic field. Many examples will be given to clarify the concepts studied. Then, we will use this technique to calculate marginal cost, marginal revenue, and optimal output that will be produced by a competitive firm. . In Unit 2, The Analysis of Competitive Markets, we will study the welfare effects of a government policy by using consumer and producer surplus.

Unit 1

Introduction

In this Unit, we will learn a new mathematical technique. By using this technique, we calculate marginal cost, marginal revenue, and the optimal output the competitive firm will produce.

Learning objectives

Upon completion of this unit you should be able to: • define the derivative of basic functions; • use derivatives to calculate marginal revenue and marginal cost; and • use derivatives to calculate a competitive firm's supply function.
Assigned reading/viewing/listening
Microeconomics, Eighth Edition textbook and study guide – Chapters 8.
How to proceed 1. Read the PowerPoint slides of Chapter 8 to get a brief idea about the chapter. 2. Read chapter 8 carefully. 3. Solve the provided problems on the textbook's companion website. 4. Solve exercises at the end of chapter 8 in your textbook.
Key words and examples
Derivation technique
A function shows a relation between two variables. For example, y=f(x)=2x is a function and it is describing the relation between variables x and y. As the variable x takes values, we can determine the value of y. In this case, when x=1, y = 2 x = 2. 1 = 2. Or when x=2, y=2x=2.2 = 4.
In economics, we use functions to describe the relation between cost and quantity, or quantity