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Unformatted text preview: Jason F rankel Economics 101 Paper Topic 2 A firm is maximizing profits in a perfectly competitive industry. From this one firm’s standpoint, the marginal cost of producing their last product, will equal the market price. How much they can produce until marginal cost equals the market price determines the current quantity supplied by the firm. Prices of variable inputs decreases. An example might be that labor costs falling. From this, there are changes to how much the firm produces at the given price level. To start, marginal cost will decrease. Marginal cost is the change in total cost in relationship to the change in total product. In this instance, total product is not changing, but total costs are falling. We can produce the same amount with less cost, and therefore, marginal cost is decreasing. Average cost is going to change, for essentially the same reason. Average cost is the total cost divided by the total product. If total costs are falling (since variable costs are falling), and product is staying constant,...
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This note was uploaded on 02/02/2010 for the course ECON 101 taught by Professor Buckles during the Spring '08 term at Vanderbilt.
- Spring '08