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8.b. The Geometry of Profit-Maximization
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Perfect competition arises when there are many firms selling a homogeneous good to many buyers with perfect information.� Under perfect competition, a firm is a price taker of its good since none of the firms can individually influence the price of the good to be purchased or sold. As the objective of each perfectly competitive firm, they choose each of their output levels to maximize their profits.� The key goal for a perfectly competitive firm in maximizing its profits is to calculate the optimal level of output at which its Marginal Cost (MC) = Market Price (P). As shown in the graph above, the profit maximization point is where MC intersects with MR or P.� If the above competitive firm produces a quantity exceeding qo, then MR and Po would be less than MC, the firm would incur an economic loss on the marginal unit, so the firm could increase its profits by decreasing its output until it reaches qo.� If the above competitive firm produces a quantity fewer than qo, then MR and Po would be greater than MC, the firm would incur profit, but not to its maximum. Therefore, the firm could increase its profits by increasing its output until it reaches qo.�
MICROECONOMICS UNIT 3 MILESTONE 3You passed this Milestone13questions were answeredcorrectly.6questions were answeredincorrectly.2questions wereskipped. These were marked incorrect.1If the goal is to maximize profit, at which point on the graph would afirm’s output be optimized?Point 4Point 3Point 2Point 1CONCEPT
Output Optimization: Marginal Revenue / Marginal Cost2Given the information in the graph shown here, at which level ofproduction will profit be maximized?
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Output Optimization: Total Revenue / Total Cost3Ben's Bagels charges $10 per dozen bagels and he sells 30 dozen bagelseach day. Ben's costs of production total $150 each day. Ben recently quithis job where he earns $100 per day in order to open his bagel store.Ben's accounting profit per day would be __________.CONCEPT
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Accounting Profit4Number ofEmployeesTotal ProductionMarginal Product ofLaborMarginal RevProduct00011919250313752549621511115Based on the data in this table, how many employees should thecompany hire in order to maximize their profit if the price of productis $5 and cost of each worker is $100?
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