Principles of Economics- Mankiw (5th) 314

Principles of Economics- Mankiw (5th) 314 - 324 PA R T F I...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
324 PART FIVE FIRM BEHAVIOR AND THE ORGANIZATION OF INDUSTRY A similar argument applies at high levels of output, such as Q 2 . In this case, marginal cost is greater than marginal revenue. If the firm reduced production by 1 unit, the costs saved would exceed the revenue lost. Thus, if marginal cost is greater than marginal revenue, the firm can raise profit by reducing production. In the end, the firm adjusts its level of production until the quantity reaches Q MAX , at which marginal revenue equals marginal cost. Thus, the monopolist’s profit- maximizing quantity of output is determined by the intersection of the marginal-revenue curve and the marginal-cost curve. In Figure 15-4, this intersection occurs at point A. You might recall from Chapter 14 that competitive firms also choose the quan- tity of output at which marginal revenue equals marginal cost. In following this rule for profit maximization, competitive firms and monopolies are alike. But there is also an important difference between these types of firm: The marginal revenue
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

Ask a homework question - tutors are online