Login Registrieren

Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

Chapter 8: Q5 (page 211)

Explain in words why a profit-maximizing firm will not choose to produce at a quantity where marginal cost exceeds marginal revenue.

Short Answer

Expert verified

Producing when Marginal Cost > Marginal Revenue implies additional profit is 0, ans Total profit decreases.

Step by step solution

01

Definitions

Marginal Cost is the additional cost when an additional unit of quantity is produced

Marginal Revenue is the additional revenue when an additional unit of quantity is sold.

02

Profit Maximisation Concept

When MC > MR : Additional cost from a unit commodity is higher than additional revenue from a unit commodity.

Additional Profit is difference between additional revenue and additional cost. MC > MR leads to additional profit from sale being negative.

03

Producer Decision Explanation

A rational profit maximising producer would not like to produce in case of : negative additional profit and decreasing total profit.

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

A market in perfect competition is in long-run equilibrium. What happens to the market if labor unions are able to increase wages for workers?

Firms in a perfectly competitive market are said to be “price takers”—that is, once the market determines an equilibrium price for the product, firms must accept this price. If you sell a product in a perfectly competitive market, but you are not happy with its price, would you raise the price, even by a cent?

Why will losses for firms in a perfectly competitive industry tend to vanish in the long run?

1. A computer company produces affordable, easy-to-use home computer systems and has fixed costs of \(250. The marginal cost of producing computers is \)700 for the first computer, \(250 for the second, \)300 for the third, \(350 for the fourth, \)400 for the fifth, \(450 for the sixth, and \)500 for the seventh.

a. Create a table that shows the company’s output, total cost, marginal cost, average cost, variable cost, and average variable cost.

b. At what price is the zero-profit point? At what price is the shutdown point?

c. If the company sells the computers for \(500, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your answer and show the profit or loss.

d. If the firm sells the computers for \)300, is it making a profit or a loss? How big is the profit or loss? Sketch a graph with AC, MC, and AVC curves to illustrate your answer and show the profit or loss.

A firm’s marginal cost curve above the average variable cost curve is equal to the firm’s individual supply curve. This means that every time a firm receives a price from the market it will be willing to supply the amount of output where the price equals marginal cost. What happens to the firm’s individual supply curve if marginal costs increase?

See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free