Suppose that a firm in a perfectly competitive industry finds that at its current output rate, marginal revenue exceeds the minimum average cost of producing any feasible rate of output. Furthermore, the firm is producing an output rate at which marginal cost is less than the average total cost at that rate of output. Is the firm maximizing its economic profits? Why or why not? Concept Introduction: Marginal revenue: Marginal revenue is the additional revenue earned by selling one more unit of the output. The marginal revenue is calculated by dividing the change in total revenue by the change in quantity produced. Economic profit: The economic profit of a firm is calculated by deducting total revenue from total cost. The total costs consists of both implicit and explicit costs. Explicit cost is the ordinary costs of the firm like rent, salaries to the employees etc. Implicit cost is also known as imputed cost describes as the opportunity cost of anything. In a perfect competitive market, if the price is greater than the average total cost; the firm will get a positive economic profit. If the price is below the average total cost curve, the firm will incur a loss. If the price was equal to the average total cost curve, it is called the breakeven point.

Question

Want to see the full answer?

Answer 1

Question

Chapter 23, Problem 7P

To determine

Suppose that a firm in a perfectly competitive industry finds that at its current output rate, marginal revenue exceeds the minimum average cost of producing any feasible rate of output. Furthermore, the firm is producing an output rate at which marginal cost is less than the average total cost at that rate of output. Is the firm maximizing its economic profits? Why or why not?

Concept Introduction:

Marginal revenue: Marginal revenue is the additional revenue earned by selling one more unit of the output. The marginal revenue is calculated by dividing the change in total revenue by the change in quantity produced.

Economic profit: The economic profit of a firm is calculated by deducting total revenue from total cost. The total costs consists of both implicit and explicit costs. Explicit cost is the ordinary costs of the firm like rent, salaries to the employees etc. Implicit cost is also known as imputed cost describes as the opportunity cost of anything. In a perfect competitive market, if the price is greater than the average total cost; the firm will get a positive economic profit. If the price is below the average total cost curve, the firm will incur a loss. If the price was equal to the average total cost curve, it is called the breakeven point.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

086 pts 400 Question 18 of 24 > © Macmillan integration-hub.macmillanlearning.com Integration Hub ↓ Micro-Economics Flashcards | Quizle = D Hint Submit Answe The graph shows the supply and demand curves of high-fructose corn syrup, a sweetener commonly used in the production of sweets and soda due to its low cost. In an effort to curb health issues, Congress puts an excise or commodity tax on corn syrup at $2 per liter. 1. Shade in the region of the graph representing the total tax revenue that this tax will generate. 2. Shade in the region of the graph representing the deadweight loss that this tax will generate. Price ($) per liter 10 9 Supply 8 7 60 5 3 2 Demand ↓ 0 0 1 2 3 4 5 6 7 8. 9 10 Quantity (millions of liters) 00 MacBook Air Tax Revenue Deadweight Loss 000 000 F4 AA DII DD L F5 F6 F7 F8 F9 F10 F11 % Attempt

what is defecit in economy?

what is economic? and whatis the different between microeconomic and economic?