One more unit exceeds the extra cost the firm should

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Unformatted text preview: elling one more unit exceeds the extra cost. – The firm should increase output to increase profit. If MR < MC – the extra revenue from selling one more unit is less than the extra cost. – The firm should decrease output to increase profit. If MR = MC, economic If MR MC economic profit is maximized. profit Quantity 0 1 2 3 4 5 6 7 8 9 10 11 12 13 TR 0 25 50 75 100 125 150 175 200 225 225 250 275 300 325 Total Cost 22 45 66 85 100 114 126 141 160 183 183 210 245 300 360 MC 22 23 21 19 15 14 12 15 19 23 27 35 55 60 Profit -22 -20 -16 -10 0 11 24 34 40 42 42 40 30 0 -35 Marginal revenue and marginal cost (dollars per day) Profit-Maximizing Output Profit-Maximizing 30 25 20 MC Profitmaximization point Loss from 10th pizza MR Profit from 9th pizza 10 0 8 9 10 10 Quantity (pizzas per day) Complete the table and indicate how much a perfectly competitive firm would produce at prices of $2, $4, $6, $8 and $10, and what their profit would be. be. Q 0 1 2 3 4 5 6 7 TC 6 TVC MC - ATC 6 10 22 30 10 7.43 AVC 4 Profits and Losses in the Short Run Short In the short run, even when the firm produces the profit-maximizing output, it does not necessarily end up making an economic profit. It may: – break-even (normal profit). – earn economic profit. – earn economic loss. Price and cost (dollars per pizza) Normal Profit 30.00 25.00 MC Break-even point 20.00 ATC MR 15.00 0 8 10 Quantity (pizzas per day) (pizzas Price and cost (dollars per pizzas) Economic Profit 30.00 25.00 MC ATC MR Economic profit profit 20.33 15.00 0 9 10 Quantity (pizzas per day) Price and cost (dollars per pizza) Economic Loss 30.00 MC ATC 25.00 20.14 17.00 0 Economic Economic loss MR 7 10 10 Quantity (pizzas per day) Price and cost (dollars per pizza) A Firm’s Supply Curve Firm’s MC 31 25 17 0 MR2 MR1 AVC AVC Shutdown Shutdown point point s 7 MR0 9 10 Quantity (pizza per day) A Firm’s Supply Curve Firm’s Price (dollars per pizza) S MC 31 25 17 0 s 7 9 10 Quantity (pizzas per day) Long-Run Adjustments Long-Run In the short run, firms may earn an economic profit, an economic loss, or break even (normal profit). In the long run, all firms earn zero econom...
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This document was uploaded on 03/14/2014.

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