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Profit-maximizing output

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Illustrate and explain how the profit maximizing level of production and is determined in perfect competition. Illustrate and explain what it means for the market to move towards a long-term equilibrium condition.

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A perfectly competitive firm is presumed to produce the quantity of output that maximizes economic profit, i.e., the difference between total revenue and total cost. This production decision can be analyzed directly with economic profit, by identifying the greatest difference between total revenue and total cost, or by the equality between marginal revenue and marginal cost.

Profit-maximizing output can be identified in one of three ways--directly with economic profit, with a comparison of total revenue and total cost, and with a comparison of marginal revenue and marginal cost.

Profit: First, profit maximization can be illustrated with a direct evaluation of ...

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Profit-maximizing output is assessed.

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Competitive Markets

Please refer attached file for graph.

The graph on the left shows the short-run marginal cost curve for a typical firm selling in a perfectly competitive industry. The graph on the right shows current industry demand and supply.

a. What is the marginal revenue that this perfectly competitive firm will earn on its 60th unit of output?
b. What level of output should this firm produce in order to maximize profit or minimize losses?
c. Given your answer to question (b) above, assume that ATC at that level of output is $10. What are the firm's profits?
d. Now assume that the firm produces 100 units of output and at that level of output ATC = $11. How many firms in total will there be in this market?
e. Finally, assume the firm produces 100 units of output and at that level of output its ATC are $13 but its AVC are $11. What should the firm do and why?

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