Mankiw's Principles of Microeconomics
Chapter 14
- Why does a perfectly competitive firm maximize revenues where P=MC?
Profit maximization is the goal of
any competitive firm. In order to accomplish this, several factors such as
average total cost, average variable cost, and marginal costs must be analyzed.
If a firm realizes that marginal revenue exceeds marginal costs then increased
levels of production will contribute to maximizing the firm’s profit.
- Why is P=MR in this market type?
Price (P) would be equal to Market
Revenue (MR) because the firm is considered a price taker. In other words a competitive
market has many firms and with several options available to the consumer, none
of these firms can influence the price at which the good or service is sold at.
- Name a business you think belongs in this category. Why?
Auto manufacturing is a good example
of an industry that seeks to maximize profit by monitoring the costs of
production. Each company considers how those costs impact their supply
decisions. Both short term economic conditions and long term economic
conditions dictate their levels of production. The auto industry is known for
rapidly adjusting production levels in order to maximize the firm’s profit
margins.
No comments:
Post a Comment