Macroeconomics
Macroeconomics
13th Edition
ISBN: 9780134744452
Author: PARKIN, Michael
Publisher: Pearson,
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Chapter 5, Problem 6SPA
To determine

Determine the possibility of unemployment if the labor market is working properly.

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Sam's profit is maximized when he produces   shirts. When he does this, the marginal cost of the last shirt he produces is   , which is    than the price Sam receives for each shirt he sells. The marginal cost of producing an additional shirt (that is, one more shirt than would maximize his profit) is   , which is    than the price Sam receives for each shirt he sells. Therefore, Sam's profit-maximizing quantity corresponds to the intersection of the    curves. Because Sam is a price taker, this last condition can also be written as    .
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