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  1. 1. Outline for Monday, July 28 Remember Midterm review today 4:30, 105 Rackley Midterm tomorrow Read Chapter 7 Homework 4 questions? Review Friday: Technology Costs
  2. 2. Technology Firms maximize profits π = R(q, p) – C(q, r, w) π is profit from producing q when prices are p, r, w R is revenue from producing q when the output price is p C is cost of producing q when input prices are r and w q is the quantity produced p is the price of output r is rent, the price of capital (K), an input w is wage, the price of Labor (L), the other input
  3. 3. Technology Firms maximize profits π = R(q, p) – C(q, r, w) The revenue function is easy: R = qp The cost function is more complicated What is the cheapest way to produce q if input prices are r and w? This depends on the firm’s technology – how they can transform inputs into outputs