Perfect_Competition_Homework - Mekaylyn Carlberg.doc - Perfect Competition Homework 8 1 The Elsie Dairy Company produces 1,000 gallons of chocolate milk

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Perfect Competition Homework # 8 1. The Elsie Dairy Company produces 1,000 gallons of chocolate milk per day, and sells it at a price of $1.50 per gallon. Its total fixed cost is $200 per day and its total variable cost is $150 per day. a) Is this firm earning a profit? How much? Show the calculations that led to your answer. (Use back of page.) The firm will be earning a profit by $1150 a day. This is calculated through 1.50% x 1000 gallons – FC – FX. b) If it is earning a profit, is it maximizing its profit? Explain. The firm is maximizing its profits because the earnings that they are making is a profit. 2. What is the rule of profit maximization? How can this rule be restated when the firm is a price taker? The rule of profit maximization is that if a place chooses to maximize their profits, they much choose the level of output where the Marginal Cost (MC) is equal to the Marginal Revenue (MR) as the Marginal Cost curve rises. (MC=MR). This rule then can be restated as P = MC with perfectly
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  • Fall '18
  • Economics, Elsie Dairy Company, rule of profit maximization

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