The monopolist’s profit maximizing level of output is found by equating its marginal revenue with its marginal cost , which is the same profit maximizing condition that a perfectly competitive firm uses to determine its equilibrium level of output.
What is the firm’s profit-maximizing output?
A competitive firm uses the following production rule to maximize profits: the firm’s profit- maximizing output level is where its marginal cost (MC) just equals the product price and where marginal cost is increasing ; that is, the MC curve is sloping upward.
What level of output should the firm produce to maximize its profit?
a. What level of output will the firm produce? To maximize profits, the firm should set marginal revenue equal to marginal cost . Given the fact that this firm is operating in a competitive market, the market price it faces is equal to marginal revenue.
What is the output rule for maximum profit?
The general rule is that the firm maximizes profit by producing that quantity of output where marginal revenue equals marginal cost .
At what point of output is a firm being most profitable?
Profits will be highest—or losses will be smallest—for a perfectly competitive firm at the quantity of output where total revenues exceed total costs by the greatest amount , or where total revenues fall short of total costs by the smallest amount.
How many units of output should a firm with the cost and demand curves shown above produce to maximize profit?
In order to maximize profit, the firm should produce where its marginal revenue and marginal cost are equal. The firm’s marginal cost of production is $20 for each unit. When the firm produces 4 units , its marginal revenue is $20. Thus, the firm should produce 4 units of output.
At what minimum price will the firm produce a positive output?
c. At what minimum price will the firm produce a positive output? greater than 0 . This means that the firm produces in the short run as long as price is positive.
When market price is P7 a profit-maximizing?
When market price is P7, a profit-maximizing firm’s short-run profits can be represented by the area(P7 – P5) ́ Q3. Refer to Figure 14-4. In the short run, if the market price is higher than P1 but less than P4, individual firms in a competitive industry will earnlosses but will remain in business.
What is the maximizing level of output?
Maximum profit is the level of output where MC equals MR.
As long as the revenue of producing another unit of output (MR) is greater than the cost of producing that unit of output (MC), the firm will increase its profit by using more variable input to produce more output.
At what price will the monopolist maximize his profit?
A monopolistic market has no competition, meaning the monopolist controls the price and quantity demanded. The level of output that maximizes a monopoly’s profit is when the marginal cost equals the marginal revenue .
What is the least cost rule?
The least‐cost rule. States that costs are minimized where the marginal product per dollar’s worth of each resource used is the same . (Example: MP of labor/labor price = MP of capital/capital price).
What is the maximization rule?
The Right Formula
In economics, the profit maximization rule is represented as MC = MR , where MC stands for marginal costs, and MR stands for marginal revenue. Companies are best able to maximize their profits when marginal costs — the change in costs caused by making a new item — are equal to marginal revenues.
What is the optimal output rule?
The Optimal Output Rule. The optimal output rule says that profit is maximized by producing the quantity of output at which the marginal cost of the last unit produced is equal to its marginal revenue .
What is the shut down rule?
The shutdown rule states that a firm should continue operations as long as the price (average revenue) is able to cover average variable costs . ... In addition, in the short run, if the firm’s total revenue is less than variable costs, the firm should shut down.
What is the demand curve for a perfectly competitive firm?
A perfectly competitive firm’s demand curve is a horizontal line at the market price . This result means that the price it receives is the same for every unit sold. The marginal revenue received by the firm is the change in total revenue from selling one more unit, which is the constant market price.
How do you determine the number of firms in a perfectly competitive firm?
divide the the aggregate demand at the equilibrium price by the output of each firm to get the number of firms.
