NEOCLASSICAL MICROECONOMICS: A MATHEMATICAL APPROACH MADE SIMPLE By Dr. Frederic 8. Lee1, ml. TABLE OF CONTENTS, Theory of Consumer Behavior and Demand A. Utility and Preference Theory B. Consumer Demand Theory ©. Market Demand Curve and Special Topics in Consumer Demand Theory D. — Marshallian Approach to Demand Theory Theory of Production and Costs A. Theory of Production B. Theory of Costs Perfect Competition, Supply Curve, and Distribution A. Perfect Competition and the Supply Curve B. Perfect Competition and Distribution 16 21 29De ee A. Ueilizy and Preference Theory Let us aSsSume a serieely quasi Con Cave ae hy function, Us acy, yo). Te has the following prepere a. marginal stil'ty oly Ua 7 >e ay, oy b marginal utility ofy,! al 2 Uy, ys) 2° 2 Ya oY c. direction of movement of marginal vtelty ost = Cy) ay,” dy,* . @ JU .Telyy) yt bye rg ° d. indifference curve G@) U= uty, y) & dU auG,y) dy teutyny) dr of on oye os deCy,y) dy, + atulyp) dy, or Jy, ay fy 2-2 Gu pli 2 NU 5 marginal cate of Fy 8 aly ley, MU, — substitution2. Con Sumer equilibrium w [= ecy,y) + ACm-py Aye) Gi) first order condctions of 2 dutyy) - Ap =e oy, ay 2S “Cy, ya) - APL=O AY 3 Yn 2 = M- PY, Px Ya =O 0 ii) conditions of equilibriom (a) From sL/ry, and tL hy, we have A= Mur 2 MUL or P, Po mui p or MRS= slepeof rhe bo get mu, “Pa Inne Me PY > Paya 72 18. money tneome has been exhausted un ey vil rim 3 example a. Uzyy, b. marginal utility 4) av = yy, on(a av = y, 2% c. direction of mavement of marginal usilty @ 3U 20 dy, @LU -6 a d. indifference uerve @Uzyy, @ slope of tnds ference curve or MRS dU dy tydy oF dys - ys dy, re) e. tensumer eguel: dea Oe ryt ACM py, ~Pr ys) f) first arder conditvens ah .y- Wp zo oy 1h zy, - Ayre a af OD PY Payee o>(3) conditions of equilibrium Gy Ajj. - or A vs MRS « slope of che budget Ine ” Pa (6) M-py,-py,F0 Te. money income hasbeen exhausted th eguch’briven Consumer Demand Theory wn demand fonctions to derive demand functions, ure Stmply solve che fest order — above and ure get no =f So, p,m) ee eGe m) f= Fa Cp, pa M) 2. shape ef rte demand curve ee Sheshy equation a. to determne the shape oe ike lene, conve ee gee we substitete x yg,and % back inte the frst order tonditcons, and pe: using. the chan rule, differentiate with respect top:@ ML PUG yf) dyk 4 Palys yt) oye 22g Ae oy 9p, ay* op, ye 28 PL s Beds yf) ay + PUGS yf) HE - DE pro YR ay sy OP oy op oP PL -dytp- yf -27F pre Asp op, oR Q) putting ca matrix netation, we have UW Ba n~p ff eye Zp, 2. %, Us pr ffdysfp, [F/° eo IMhpt Lye Q) using. Cramer's rule to solve fer aye /op, vweget Jyh s MDs + yE Dar yy which is kneum asthe Slorshy op, D D equation; and uhere De Ju, we, -p, a, Usa pp | 7° because the orclity function ¢s PP. .° Striecly quost- Concave <0; Ds, | Wr -P, | xo because D3, as ~Pa, fs not a border preserving prenuple miner° | 3. substitutven effect a. Te delineate the substitution effect, a Lagrangian function can be established én which expenditures are Minimize. Subject ta ach ieveng. a gen level of total utility: Le pnraye WOU Ucy, yd) b. Furst order cmdutvens aL = p- veut) = priv = o% oy IL zs po ViUGay) = pr Use 2 Yn ay a Ue Wly,, y.) =O ay c solving for the ‘substitution’ demand a we get 5 y= Ai Cp py, UY) 's rf, Gy pu) . wife Cp, pu") d. nour porting y3, yb, and back tte the first arder conditions, then using the chan rule to diferentute woth respect top,, and then pe thong te matrix notation, ure get ey Ae os Cer ia ~Unve eawt - uy Hays /op, [Ff 6 -w eo Haye, I Lo€. USsting Cramer's Rule to salve for oyF /4p, ue ger dy6 s EY Moe .w ts negative and D” is neganive oP, oY because the Utdhity function rs Strictly quasi~ concave « £ by trae ing. Cee eo ee ee ee mathematriel manipulations we lan arrive atthe Klhurng resuleé dy 2 CODY 2 HD. go = D Thos che Frar term of the Slutsky equation ry rhe substitonen effet and it is aluays negative. 4 tneome effect a. To delineate the income effet, Lot us substitute y,¢ y,e,and Nees the Ger ee on adhe, Ue ete) respect to M Csee, pp. 4-5): Lint Wy dye + wz ayk -p ae am am 3m ° wn De om om am Lut 17 pant -pdyt ze am) Mm)b. putting date matrix notation ure get ty 4a oP ay2/2M © a, Har “Pa aye fim Ee -p op, olla AML La 6. using Cromers Rule to oo dy £Am we get 3 ye = GN) Dn yo Since D3, rsnot a border preserving 3am Dd prenceple miner ; ches the taume efkct tan be exther posctive or negative 4. Thos the secend term of the Shorshy equation i's the tneome effect and ns ston 1's a . 5. Bringing together the above results, the Slotshy equation can e rewritten ae dyf 2 ayS - yey Ze oP, oP, an | ie the shape of rhe consumer demand oucve 1% Cah oon because of the tn ome effect.6. inteme elaaticcty of demand and the demand carve a. Unceme elastraty of demand (LED) defined: dye M2 dye dm the percentage denge tA IM ye “ye m quantety demonded diitded by rhe percentage change th meney tnceme . b. LED and types of goods @ supercar goo dyf yo and LED >! om @ dy yo ond of TAI this is a normal good. mn @) infertor good dy* 40 and TEDSO 3m c. Slorshy equation and IED (ay molecply ing she Slorsky equation by Mp, / Myf we get ee Myth py OP, am Reve shen ~ Aye ym Bye ap ye mM = yeIMm@® where py& csthe average propensity tetmsume peed m on@ and & 1% auoys positive 3 poy? csthe elaatvaty frespense of ye tow oR ye change cmp, holding. vtech ty Ce and it 1s always negative ; dyeM is TED and tt tan be positive or ye eM negative depending onthe nature Fike goods pdyt is the prne ebetinity of demand of op yf good one. (a if TED ss positive or net very negative, chearhe price ebstruty of demand is negative oe consumer deman curve skpes doumward; if TED is very negative ,then rhe price ebstruty of demand is positive and rhe demand aurve a cpurard. In his caer, the geod 15 called « Gitten els example a. urorking with the felhucng ficst order conditions (see p.3) che fons umer 7 curve Cor Runetin) cen be derived i Q) forse order wnditions yw 7 pe Yo 4h eeeQn yo 2X2 yw thus Py Py Ye = PRYa Ps @ substrting tnto M=py, ty weger M= pvp + By > Pe Yo boeken ge Msap, he demand eurve for geod 2 6) now substituting M/rp, into yf py. /p we gee Vir Wp, rhe demand carve for geod | b. sobstitetion effect aw Lz, y py t¥ CU yy, ) ey fect order conditions ah = p-Vyre ey, the p- Vy ee dyn eo avG solving the first order cendenons Op va thus Yo ye Yo" Yo Pa Pi 8) Substituting tato U°=y,y, ure get ye (Up, ey? “substitutren’ demand curve fy, cai) substitureng. CU%, yeay* tate y, = pA /p we get vis (URE GI ‘substitetren' demand aurve Lr y, civ) deriving. the substitution effet for good one dy GO AMaY BCUA)* <0 oP,@ e. theme effect working. aith the demand curve yes 0/2, she tneeme effect can be derived inthe Fllocsing manner + oye = 7 oO am Ap d. Slutsky equation ays dyh - yf oat op, oP, eM =e im \f 3 } [note let U%: yf yf or re 2h ah Ue ms tA ps = ~1L 40 apr €. income eheatcaity of Jo! Ti em fF oF a 5 2, MapD C. Marker Ded Carve and Speeral Tepies ty Consumer Demand Theary l. Cross effects a. gross effects a Re ¥ da ty fDsa yo Stree both minors are net , D prinaple minors and the lase term is net w erdlerper serving mm tnor w of dys 22 gress substitutes oP, ee cf dye Leo gress complements Pr @ if ay,® = gress crdependents 3A W) example dys = 3(MAp) =o gress cndependents - oP, b. net effects dys = NOK 2 Me yoa if dy8 50. net sobstitures opi Gif dys go net cemplements 7, @ fays so net thdependents oP, @ exam Je ' i / ] Oye = OE (U ace) | Ue =a 1 x a 20 oP A AP fa tra. tue geod otchtty Lnetvon, the goods are lays net subs trates 2. price ehstraty cede a=] panes pant - Bye eye | eye he ee w rf ey 200 demand cs perfectly elastic fo fheyr! demand is ehstre @) Fey=t demand cs unitary ebstie (Led) demand is trehstic 6) example ed= le erg /> fam apr [=]- ant] \ oP, ye a mRe ampsh Mar shallean Approach t Demand Theory Cromer Equclrbeiem Le wenrs ye VM-py-py) Fiest Order Conditions Ve eG) | Ap oz Mmu-Ag dy, ay, AL 2 du) -Ap_ 2 Mp, dyn Aya aL : m-py- pyr a> 3. setteng equal te zero echer we have ads MU 2 my Pp pu Cond ctons fe jm Sumer quel beam b M-py-Pry to 4. Second Order Crpitins for Urility Manimisation - here we dcfFerentate oo repet toy, Yesand A Ly BueG re; £2 Uearse LF -p 77 yay Leeds, Lo 2a) cs Layer dyady, ant “Ph 3 Ca £,,7° Porting doo keh, matron, we have158 uly) e Pi ay, 2 uly) ~P2| = Dd e ie epi ~ pa. ° To have wtuhity maximisation, the determinant of rle matrex must be pesctive tn rhs tun-ge0d case. Clee le the detemnant | Mul /dy* © -p Oo sete) / ay -p, | | D1= Ge,acpa) # Cp Mle of e wlih a decyl rsd ofthe hol denolig, maga utility. IE. Deriveng Marshollian Demand Curves Tee eee et es ne weger: 8 = 60,0) = y8Cp, AM) ne Gp * v2 Ge, pm) Vf Cas pul) = Gon.) Te determinethe shape ofthe Macdhallinn deme carve for geal |, lets subsitate y,% ye and Y® hack inte the ese cnditions whuh gues us: Vo wwelye J _ 8p 20 ay Ge aulyt] - ps0 oye Le Maye pye zoIse a Liz aulye Gam - Gp, m)p, so ay, ‘oe rulye Gia md EG, pulp, =O ty, Lye Mp, yeCps pum) ~pry2Cp.pm) 20 3. Now vsung the chasn rule and dcflerent isting. enith respeet eR we get $L = tulyf] aytCeasM) - W&hp,mip- reo ay9p, ie 2p, * A 4p de oe ely 1 ayfG.pm) - 228 Gn.m) p= aR a ap, of PE. ay eepn mp - 2 luam) -y6 z0 or dp, 2p, 2p, 4. putting on matrix notaten, wre have eo dy, ow, n yt /Ip. | F poop eo harhel Ly 5. using Cramer's rubte solve fr dy°/ 3p we ger Mo, [ust] : 4 yes [: Qe i. ¥ i-pA eo yf pep al or | Caaf(50 NE p) tL CRM — siee Uy 60 and e see ro ' |] op 6. Te canbe shem thet 2U*. UGE], lap)! = 7 am dm or thar the margenal otility of meney ce cca AG m) 1 Marslell argued thar DC pps M)=O 12, NEF Gnstant of 8 The complications ,,r——CCE a qeing back to 3 ahve, if Jat =o chenwe have oh Uy dyf ~ Aso op id so 2p, oF oe 0° +h opi b. purtung inte matrix form we get ; eT) dy°/ dp, ae o Une aye bake os . ce bor they e flectively reduces to [ete PP] Co WaSE ay 0, whoh smly Le MY we +p omy, Pp Dis ee €. useng ce. eT FF 3 ° Qe chick is abe a Macslallin Presele® TL. Theory of Prdotion an d Costs A. Theery of Prodveteon t Tn this course we shall enly be concemed unth varval le- prepections production function. Such a pradechion function Can be wretten as y= Ele, x3) uhere y is the output and x, end x, are the fOr Lnputs. iG ensure that vhs production Function us the proper’ kind uchich permits profit maim zertion (ost minimization, Ct must hove the Following properties: a. it is singled valued, everywhere tentinuers, and well defined over the rerge of tnpors yield nennegative outputs ; b UF tsamenotenceally Vnerating Lotions re. 1£ x; cncreases y cnereases; €. Chis & Strietly guast~ concave finetion which generates strictly Gonver Boguants; a a are tnternally homogeneou S 5 & tard 20 ‘Lyr0, hence x,70 and % 70 thus imphing. 22} and £. the production function is fixed~ hence no technical change Gan oteur. 2. preperties of rhe production inetion= Sei le (nput Varcation a. marginal product dy 2 2F GY yo ie. the margcnal product of x, Is positive on, ax,© eyes sf Cy) yo ce the marginal producto 15, is positive oxy xX, ee marginal product a marginal product of x, Sy: fn) 20 ox, dx? _ Q) marginal product of eyes of (xx) Zo oxy te ae w average product of x: AR = yl, = fn [x @) average product of x: AR syd = £Gu, u) [ay (2) slope of rhe AP curve DAP 2 2Cy/iu) 2 (MP-AR) co MP AP: ox 2X Xe ro cf MB > BR: so cf MB: AP: d. cueput elasticity of the coh input fo dy some 2 dy xe = mh y xi oxy AR:© 3. properties of the production fonetion - preporticna/ Unpet Variations a. given che Following tnput pent (AX, Ya.) where Misa multipher and rhe Corresponding evtpet yf CAx,, 1x), then Fonction weflivens Ep= dy A 71 IRS dy aS zi CRS bh rebtionship between & and &; (0) totally di fhren tate rhe p reduction function dx, + £6.) x dx dy= IF Guu) dx, + slen) deg = Iflu,4) & ax dr, oh Ok Jk k, @ sence dee /xc = SX/A welave So ae Uy 4) af 2 Oy ax, d an UG xe) +r HE ) xr dd 3K Ox, @ dividing Ly yy we ger MGun) & = & 16, tg: dy Vs dfx %) wg day 3X, y cy@ 41. properties of the predsction Lunchion ~ sémultanecus input Variation a, USequant - ye Lin) b s lope phe fsoguant or marzenal rate of technical substitution dyes Fx, x.) dx, eJeGg a). oe ax, Ox, dine - flan) /dx, 2m s ~MATS dx, thn) /an me, s. example a. bet os work with the Ellwing production Function y= xy x2 a b marginal preduets : 0 marginall product of x, ~ poy. LOh eh) cL 4] ) aX, ax, aLx, 0) marpral prodvetof x, dy 2 lahat) . tf" 90 oh ok 2 Lx © direction of mavement’ of rhe marginal product waty se La po sohaue diminishing marpenal predvct ax, 4 xe oo ay 27 M4 xh A 60 axd. average pro duct w AP= ey" x @ Ah [s : Ry €. output ebstiuity of rhe ck dnpot @& = dy a tf May sd an Y ALA, xy ( AL x] » Sotto t/a] [a] of OH Yo ALhe, a £. Linetion cocfbiaent to &= dy : Oui =) day * Bincra JOG ye Ges) Gen eCL — ) A Pegg21 g. "Soguant @ yt Agi G) slepe of isequant day - MA flan MATS dx ee 8. Theery of Goes L optimal input combination ~ Cost minimization expproach a. the object of thes aa is to minimize the costs of producing. a given level of output, This a lated a minimize T C= px, + prs, sobject to £¢x,, x) y b Setteng. up the Lag range funetron ee al ye fex, nl 6 Ficst order tendetions Sp okt) = po Df =o ox, ax of sp - 2fGn) = p> aA zo aka aX, 2 ye Fn, x) =O o>)J. condition Kr eptimal pet Combination Ot ff or ie he es MRTS = slope of the trocase Ine Ae @ y?-Fls,4) 20 ee solving ae (ie oe Cee, art ge knstant sutput demand finetims ae lagrangean mu lepher Lanctien @ 18 * ple As ye) @ =p. lb psy) w Ven, Caps yd de bet us & eat oe Same exercise, brat assuming thes rhe eumeunt fx, vs boned oo a. weuent tominimezel C= pa *prag subject fix, 22)=y*. b setting. up he lag range function mAs tae t AC yt Fle, x2) &. First order condetrons on BR A kG a) 2 po AF, =e aK, ax, LG . yt: £0, x2) = 0 2dcee be optemall capt combined oon Oe oP. @ y? “Fa, 20 e. £0, veng he Ge ode editions ure gat a lenstant cutee demand funetven and he lagrangaian me bypher fonction Cy) Cc (py) = pe Cpsy?) 2. cost Lanetion a. to derive a vest Linetion trom which cost and sopply curves are derived, the constant cueput demand Linchins must be substiuted back on te le cost equation equation C= Rx, t RX b shart perved Gost function (y totaleosts: TL = a @ Fesed costs. FC= Bre @) varcable costs: VC? pat ()) average Fixed wasts: AFC = puto? /y? G) average vartable costs: AVC= pracy? G) average total costs: ATC = pal +pxe 3 @) marginal costs. MC= IIL zs IC pw® taxg] zp 2lxed oy oy 7@ Ww cf te 71 we have crereasing returns te Seah and ATC? MC- theo the ATC cs deckning; ut have constant retums tasede and ATC= MC- thes ATCand NC ae “herizentall’ ; G) ite <1 wehwwe creasing returns to seale and ATL‘MC thos borh ATC and MN are increasing . wif, 21 6. Genstant input demand functeens a. Share perced axes =f 2b yo (see pas) oy he f, thes if the level of eutput increases, che quantity ded af x, tnereases. 6. long. pervad a Zo sick rem border porserveng menor ay D @ ouf 2 GI) Dan x5 since oo perserving menor oy D (» he abeve resules state thas if rhe level oFerepuct cnereases, the faster cnput levels tan ecther cnerease ordecrease -W) porting inte matrix firm we ger Fa ssbb Be eee de @ sing Coe een, OD yhy 328 oy Cof-aee, 7 i ene 7O Stee hy ss negotive ay af oh koe the marginal cost auve gas fem shpes opurard, b. average total costs QATC = yoTthy ~TC 2 yme-Te »0 if MC 7ATC ay y= ye 20 (Ff NC ATC so HE MCSATC (2) the minimum powrrof the ATC urve cceurs wher MC=ATC wif MC4ATC, chen ATC cs falling Wf MC ATC then ATC & increasing & average varcable wstrs MIAVE. ydVChy -VC =z yMC~ VC ro rf MC PAVE ay So ye 20 rf mco= AVE @ the minimum poort ee, FE @ rf£MC> AVC, then AVC o increasing(4) to see uhether MCS Avc, Cole | abe Following relstionship between marginal costs end varuble costs: aT¢ PFC + dVC . dVe = Mme ef Consequently, scree IME fay = PVE /2y* 70, pet only must varcable costs be increasing atan tnereasing rate, AVC must also be trereasing. » There fore, MC = Ale only atthe tncteal pount cf production : Ss. long. perved theory of Wests ee, [het hx] sence p= EL and BR AH Csee P 21) tC oa wefhiuent, & 1s define d “es 2 | fiat rhxe x Y ic 6 thes wean rewnte las TC= My & J. tonverting. 60 average, total costs, ee have ATC = V%_ > MC ef €. inking the (awa of return fosele te bing. perrad costs we ar €,= ATCCc long. perced G) total wsts: TC = PK * BR ih @ average totel casts: ATC? pe tp af y @) margraleosts: MCz ITC ~ pre rpxe] o 7 4. shore perted cheery of costs a. mar: cost m MC=3TC = pant ay oy @ from the first order cendction Csee pp. 22-23) ure know that pdae sp = ae oy ce B substituting we ger MC= DF W te determine rhe shape ofthe marginal cose curve, we ae te return to the fecst order cendition 5, Substipste enrhe demand peal Lagrangian mulécplier fonction and. dil erent cate work respect to y°* Ge ake) one | he) ne | 34, dy oe hee dy axe ay Yh 2 - afta) axf +150 Hrd dx? dy@ 1 example a. shore persed o to ebtmin the marginel car curve and tonstant outpect lemand inctren Lites do the felbuving @ Lepataa t Aly - ata] 6) fest order ondctins a) p-A UAT le 20 ci) yan oO. ©) solving fost order dene ure got vr xfely wy = yl? es 2p Xa IN @) since MC =A che dME/y* HIE Yy -dhos BAe 2 Ap yo te, the margenal west curve Us ay a Unereas ing. G) dae 2 By ro ce. a0 the level ofovtper increase se does dy x the usage of x,18a b. long. pervod of Men pep 2) [y- ay] fosr order cmdurrens wr pp 7 Wh Cah)” 20 wi po WAC Ix.)™ 0 try y 7 4%)* at 20 Gy selving ee cee Ae typ pt 2 cmstant outpr demand fnctonier x, KS 7p py = Constant output demand function fr Xa, ae 2p ae () sence mee AE then DAS zo ce. MNCs enstent ay (S)shpes of Constant ovtput demand fnetons dxf sh y pip Y PLP, oS op, asl sh yp pt 2p (0 cross effects of tonstant curper demand fons Bah shy pithy 7 20 Substinates28h @ effet of change cr ovepst fr rhe demand fr faster inputs normal eter wput Oe Ce ee necmed factor inpor TC= px tat (a () sobsthuhng we ger TCs yA ee Gy . ty Lp eph a pir pn] ( tebtaning ATC we ger Te. yLpmptr ph ph] 7 iz 2p = Gastant ~ y varres Ale = G) obtamag MC weger es apph = > ey © = Constant MG Ane. S)TO Perfect Competizimn , Supply Grve, and Distechution AL Perfeet Competition andl the S. epply Grve ; equdh beim ee le shart perved 5 ee SSum ing. ee profits, garen a market price, Dele te Moarng. rebinshy max. T= py y ~ Axe Ate where x= pe, 6H 5y°) A de Flerentiating. work respect ty, we get * 3m: Lp ynpat-p xl bt ps he ey y Py ~pa xe o) 5 Setting equal to 2ere we get Py PB on = MC Cseep. 23) oy 10 ek sition, . ae we take the seemd sertetive of rhe profir eguatien | vi dtp y Pe pe aye ay orhy - p oan a oy -PpPh sence Py S eonstant. 2 @ Sine ~p de® 22M. - 2A" co dy* ay™ oy C seepp.a4-as) Rem represents oprofit Maximizing position. That 3, to maximize its profits, the oem wl sepply the amount of eutput a costs equals the oveputpnce. atushr a firm short pertad supply curve a. although =MC= Mepe, Cp, ye) determines the quantity of output 4 firm well soppl ae mackerprice Py: urdees net represent the fam's supply curve Since output y, cs ov a and p, che dependent variable instead of the orher ap arsnd. Hocrerchi'pn lem i couby orreme by orcertng the cebetionship : Dy = Mey lps yt) ~ cnverting we get ye Lp. py) ~ nour cuput is function of price ae becaroa the b dy ce, the suppl Ie 2Y yo be, the Supply curve slepes m * a ost aurve ee frehe same oP; PEASINS3. equulbeiom af rhe frm in the long ported a assumeng thar the fem wants te makimize (ts profits, gun CoStS and the market price, ure fe the Rlbusng rehsienships: mon T= Py y “PAS Ras b. differentiating with respect to y, we ger : amr dlp y - pac pas] oy ay ie Setting equal te Zero ure got Py® P2Ke sp dnt = MC ay oy d. te def ucherler cee a prokct makiimi2ing- pes tren, wre e the Second derivative ofthe prokir equation » sr = lpy ~ pe oe dyt dy or = e Py - poke -pdee or vy ay* oye ye ~ ~ Prt Ay Stnce py IS Constant ic ae e peofer maximization pesttion, the second derivative must be negative For this to be the cam then pret +p 24S IMC muse be posctive, ay* ay ay 4 Ficnn's long perved supply curve a. Letting Py : de, Cry pry?) ~ averting wre gat yf VCP, Ps Py) — new output is oo cfprive boys ce! rhe sepph curve shpes epurrd Cadi tng. che >Py in cert curve dees, 5 example - sheet pertod Kiem supply curve a hye y/o oe Cree p28 where ce 2x2) b. am: Py 7 dy x lke e Setting equal tree we get Pe ehy |G Xv?d. wt hawre x profit maximization postion because ae . py 3 py /Ke ) ay 2, ay = AP go x? i supply curve Py =2RY ‘inverting’ we gat aL 7 >Pr £ shape of the ficm supply carve Co ee at Py of