Advanced Microeconomics
                                  Ivan Etzo
                               University of Cagliari
                                 ietzo@unica.it
                 Dottorato in Scienze Economiche e Aziendali, XXXIV ciclo
        Ivan Etzo (UNICA)     Lecture 2: Profit Maximization             1 / 35
  Overview
   1  The model of profit maximization
   2  Short-run Profit-Maximization
   3  Long-run Profit-Maximization
   4  Profit maximization and Returns to Scale
   5  The Weak Axiom of Profit Maximization (WAPM)
       Ivan Etzo (UNICA)     Lecture 2: Profit Maximization             2 / 35
  The model of profit maximization
        Aim: to describe how the firm chooses the amount of output to
        produce and the production plan to employ.
        Weneed to make some assumptions regarding:
          1  The firm’s objective
          2  The output market
          3  The inputs market
        Ivan Etzo (UNICA)       Lecture 2: Profit Maximization               3 / 35
  Economic profit
        Afirm uses inputs x = 1,2,··· ,m to make products i = 1,2,··· ,n.
        Output levels are y1,··· yn.
        Input levels are x1,··· xm.
        Product prices are p ,··· p .
                            1      n
        Input prices are w ,··· w .
                          1      m
        Wewill study the profit-maximization problem of a firm that faces
        competitive markets for both factors of production and output.
        The competitive firm takes all output prices p ,··· p and all input
                                                      1      n
        prices w ,··· w   as given constants.
                1      m
        Ivan Etzo (UNICA)      Lecture 2: Profit Maximization                4 / 35