In principle, how do we determine a perfectly competitive firm's profit-maximizing output and maximum profits given information about the market clearing price, and about the marginal cost and average total cost curves of the firm? Explain in words
What will be an ideal response?
For a perfectly competitive firm, the market clearing price is the firm's marginal revenue and average revenue. The firm maximizes profits by producing the output at which marginal revenue equals marginal cost, which is at the point where the firm's marginal revenue curve crosses its marginal cost curve. Per-unit profit equals the market clearing price minus the average total cost of producing the profit-maximizing output. Total profits equal profit per unit (price minus average total cost) times the profit-maximizing output.
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Suppose the market demand function for ice cream is Qd = 10 - 2P and the market supply function for ice cream is Qs = 4P - 2, both measured in millions of gallons of ice cream per year. Suppose the government imposes a $0.50 tax on each gallon of ice cream. The change in producer surplus due to the tax is:
A. $3.56 million. B. $1.89 million. C. $7.11 million. D. $944,444.
Last year the Jones family earned $40,000 . This year their income is $42,000 . In an economy with an inflation rate of 10 percent, which of the following is correct?
a. The Jones' nominal income and real income have both fallen. b. The Jones' nominal income and real income have both risen. c. The Jones' nominal income has increased and their real income has fallen. d. The Jones' nominal income has decreased and their real income has risen.
If the official unemployment rate increases in March from its February level because of sluggish sales in the auto industry, we can conclude that ____ unemployment is responsible for the increase
a. seasonal b. cyclical c. structural d. frictional e. any one of the causes of
Which of the following is a reason why American ideology regarding antitrust policy has changed over the past few decades?
A. Fewer foreign firms face restrictions in their home countries. B. More foreign producers provide competition for domestic producers. C. More Americans are stockholders and benefit from monopolies. D. Fewer Americans are involved in the political process.