Chapter 16, Problem 1QE

To determine

Profit maximization by all the businesses in Company U.

Explanation of Solution

The profit is the excess revenue made by the firm after deducting the total cost of production from the total revenue made by the firm through the sale of the goods and services in the market. The firms in the imperfectly competitive market will be attracted toward the maximization of the profit in the market and thus, they would work toward the actions that maximize the profits for the businesses.

Even though the main objective of every firm under the imperfectly competitive market is to maximize their profit, the firms cannot always work for maximizing their profits in the US economy. There are many internal monitoring issues with every firm and these internal monitoring issues make the managers of the firm to look away from the profit maximization principle and might waste the profit potential on high priced benefits for themselves, which leads to the inefficiency in the production. When the inefficiency increases above the market limit, the firm might go out of business due to the loss. Thus, it is not necessary that the businesses in the US would always maximize their profit in the US economy.

Economics Concept Introduction

Market equilibrium: The market equilibrium is obtained at the point where the market demand equals with the market supply in the economy. There will be no excess or shortage in the economy when the economy is in its equilibrium.