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1.
Consider a firm that operates in a competitive market. The market price isp and the output quantity produced by the firm is q. Use diagrams toillustrate your arguments.
(a) Suppose that the firm’s marginal costs MC(q) increase in q and thatthe firm’s profit is positive if it produces the output quantity q that satisfiesp=MC(q). Explain why the output quantity that satisfies p=MC(q)maximizes the firm’s profit.
1.
Consider a firm that operates in a competitive market. The market price isp and the output quantity produced by the firm is q. Use diagrams toillustrate your arguments.
(a) Suppose that the firm’s marginal costs MC(q) increase in q and thatthe firm’s profit is positive if it produces the output quantity q that satisfiesp=MC(q). Explain why the output quantity that satisfies p=MC(q)maximizes the firm’s profit.