The profit-maximizing rule of production is to produce the level of output where price is equal to marginal cost. Since the marginal cost (MC) curve is U-shaped, the price line running horizontal to the X-axis intersects the MC curve at two points. How is the profit maximization rule applied in this case?
The MC curve intersects the price line once when it is falling, and later when it is upward sloping. The firm continues to equate marginal cost and price by producing at the level of out-put where the MC intersecting the price line is positively sloped. At any output level below this, the firm can increase profit by raising output. In fact, the left-hand intersection between the MC and the price line, where the MC curve is negatively sloped, is the local minimum of profit (loss). It is only after this point that the market price exceeds the firm's marginal cost of production.
You might also like to view...
An unexpected drop in the LEI should send bond prices __________ and stock prices __________
A) up; up B) up; down C) down; up D) down; down
Suppose a major civil war broke out in an important oil-producing nation. What impact would this have on the market for oil?
What will be an ideal response?
In the factor market:
A. households supply factors of production to business and are paid by business for doing so. B. government produces goods and services and supplies them to households and business. C. business produces goods and services and sells them to households and government. D. households supply factors of production to business and are paid by government for doing so.
Human capital is a type of social capital.
Answer the following statement true (T) or false (F)