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Chapter 8: Q.3 (page 210)

Look at Table 8.13. What would happen to the firm’s profits if the market price increases to $6 per pack of raspberries?

Short Answer

Expert verified

If the market price of raspberries rises to $6per pack, the firm's profit is $216.

Step by step solution

01

Definition

Profit maximization is the process by which a firm determines the cost, input levels that result in the highest profit. In the profit maximization, price, and quantity are at that point where MC=MR.

02

Explanation

Profit maximizing condition under perfect competition is P=MC. When P=$4, profit-maximizing output = 80raspberries because at this output level, MC

=230-19080-70=$4

which is equals to price, profit =$90

when market price increases to $6per pack of raspberries, profit-maximizing output = 90 raspberries because at this output level, MC

=324-26490-80=$6

which is equal to the price.

Therefore, the firm's profit:

=TR-TC=$(6)(90)=$216

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Most popular questions from this chapter

What two rules does a perfectly competitive firm apply to determine its profit-maximizing quantity of output?

Since a perfectly competitive firm can sell as much as it wishes at the market price, why can the firm not simply increase its profits by selling an extremely high quantity?

Should a firm shut down immediately if it is making losses?

Explain how the profit-maximizing rule of setting P = MC leads a perfectly competitive market to be allocatively efficient.

What two lines on a cost curve diagram intersect at the zero-profit point?
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