What does a perfectly competitive firm do to maximize profits?
What will be an ideal response?
The perfect competitor cannot influence market price, so it must find the rate of production that maximizes its profits. The profit-maximizing output is the output at which marginal revenue equals marginal cost. If marginal revenue is greater than marginal cost, an additional unit increases revenues more than costs, so profits increase. If marginal revenue is less than marginal cost, a reduction in output of one unit reduces costs more than revenues, so profits increase. Economic profits are maximized when marginal revenue equals marginal cost.
You might also like to view...
A U.S. company that wishes to sell more to other countries would favor
A) an appreciation of the dollar. B) a depreciation of the dollar. C) neither an appreciation nor a depreciation of the dollar. D) higher interest rates.
Which of the following is the best example of a differentiated product?
A) beets in the local supermarket B) diamonds C) airlines D) running shoes E) electricity
The marginal revenue product curve slopes downward only if the firm is a price searcher in the product market
a. True b. False
Pietro is 40 years old and is laid off from his job at the paper plant and borrows from his savings for 8 months until he finds a new job. Pietro's
a. transitory income likely exceeds his permanent income for that year. b. borrowing is representative of a normal economic life cycle. c. permanent income is largely unaffected by this one time change to his income. d. economic mobility during this year is highly unusual, as US workers tend to stay in a particular income class.