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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A. provides little insight into how people actually chose between alternatives. B. provides an abstract model of a rational person should choose between alternatives. C. describes how people behave once they have enough education. D. fully captures how people choose between alternatives.
Assume that price exceeds average variable cost over the relevant range of demand
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a. True b. False Indicate whether the statement is true or false
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A. D; C B. D; B C. A; B D. B; C