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Chapter 8: Q.4 (page 211)

Suppose that the market price increases to $6, as Table 8.14 shows. What would happen to the profit-maximizing output level?

Short Answer

Expert verified

The profit maximizing output level becomes 90units.

Step by step solution

01

Given information

In a perfect competition, following information is provided

The profit maximization price and quantity are at that point where MC=MR, and MC cuts MR.In other words, MC should be rising when it equates to MR.

02

Explanation

As we know, in order to maximize the profit the firm will produce that level of output where MR=MC. We can see from the table that MR=MC at Q=90, therefore, this firm will produce the 90units of output. Also, profit is the difference between TR and TC, at Q=90, TR=540, and TC=324, so the profit isrole="math" localid="1646821019343" $540-$324=$216. So we can say that the firm is making a positive profit when P=$6.

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Most popular questions from this chapter

Productive efficiency and allocative efficiency are two concepts achieved in the long run in a perfectly competitive market. These are the two reasons why we call them “perfect.” How would you use these two concepts to analyze other market structures and label them “imperfect?”

A market in perfect competition is in long-run equilibrium. What happens to the market if labor unions are able to increase wages for workers?

Firms in a perfectly competitive market are said to be “price takers”—that is, once the market determines an equilibrium price for the product, firms must accept this price. If you sell a product in a perfectly competitive market, but you are not happy with its price, would you raise the price, even by a cent?

A firm’s marginal cost curve above the average variable cost curve is equal to the firm’s individual supply curve. This means that every time a firm receives a price from the market it will be willing to supply the amount of output where the price equals marginal cost. What happens to the firm’s individual supply curve if marginal costs increase?

Explain in words why a profit-maximizing firm will not choose to produce at a quantity where marginal cost exceeds marginal revenue.
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