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    Find firm's profit-maximizing (or loss minimizing) output

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    Suppose that a perfectly competitive firm faces a market price (P) $5 per unit, and at this price the upward-sloping portion of the firm's marginal cost curve crosses its marginal revenue curve at an output (Q) level of 1,500 units. If the firm produces 1,500 units, its average variable costs (AVC) equal $5.50 per unit, and its average fixed costs (AFC) equal 50 cents per unit. What is the firm's profit-maximizing (or loss minimizing) output (Q) level? What is the amount of its economic profits (or losses) at this output level? What would be the firm's decision at this price/output level?

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    Solution Preview

    Since perfect competitors always maximize profit by choosing the level of output such that P = MC, from ...

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    This solution show how to find a firm's profit-maximizing (or loss minimizing) output (Q) level.

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