Question

To maximize profit, a price taker will expand its output as long as the sale of additional units adds more to revenues (marginal revenues) than to costs (marginal costs). Therefore, the profit-maximizing price taker will produce the output level at which marginal revenue (and price) equals marginal cost.

In a price-taker market, if a business produces efficiently (i.e., that is, where marginal revenues = marginal costs), the firm will be able to make at least a normal profit. True of False. Explain.

All firms produce where MR=MC. Price takers produce and price where P=ATC=MC=MR. That is the "normal profit" level. Profits above that level are considered "economic profits." Review economic profits, normal profits, explicit costs, and implicit costs.

Answer 1

False.

Explanation:

MR=MC is the profit maximising or loss minimising quantity. This not the case that always firm will be in profit.

Normal profit is accounting profit. It is only considers the explicit cost.

Explicit cost is the cost which actually occurs. We paid for it. For example salary to workers, Row material cost etc.

Economic profit is also considers the implicit cost.

Implicit cost is opportunity cost. For example on which land we are running the Bussiness can also use ful for farming and we could earn 2000 out of that. So that 2000 will be Implicit cost.

Now come to the point that why price taker firm produce where MR=MC=P. The reason behind that is because price taker firms are competitive market. They don't decides the price. They sells on the market price. So by selling one extra unit will always equal to price.

Now come to the point that why they always not in the profit. Profit is depends on the cost and revenue. And different different firm has their own capacity and expertise. Depending on that cost is differ for different firms. But as we see they are price taker they can not charge higher price than that. So if the cost of the firm will less than the profit will be occur. But when the total cost will be higher than total revenue then, it will make loss.

At the point where MR=MC, firm can maximise profit or minimise loss.

Note: in short term firm may in profit or loss, but at the end in long run it will earn zero economic profit.

Answer 2

To maximize profit, a price taker will expand its output as long as the sale of additional units adds more to revenues (marginal revenues) than to costs (marginal costs).  Therefore, the profit-maximizing price taker will produce the output level at which marginal revenue (and price) equals marginal cost.

In a price-taker market, if a business produces efficiently (i.e., that is, where marginal revenues = marginal costs), the firm will be able to make at least a normal profit.  True of False.  Explain.

All firms produce where MR=MC.  Price takers produce and price where P=ATC=MC=MR.  That is the "normal profit" level.  Profits above that level are considered "economic profits."  Review economic profits, normal profits, explicit costs, and implicit costs.