In order to maximize profits or minimize losses, a competitivefirm will produce

ID: 1243352 • Letter: I

Question

In order to maximize profits or minimize losses, a competitivefirm will produce at the point where MC = MR. Do you agree ordisagree with this statement? Explain your answer and use at least2 hypothetical, numerical examples in your response. Presentwhat happens to the level of profits when MC>MR and MC<MR,and then show the level of profits where MC=MR. What happens tomarginal cost and marginal revenue as output increases.

Explanation / Answer

Yes, I agree with this statement. At the point of MC=MR, for everyadditional unit produce, their cost equal to the sales price. Itmeans that no profit for the firm. However, a competitive willproduce at this point. This is because they wont face any loss atthis point and can sell more. When MC>MR. For example, MC = $8, MR = $7. For every extra unitproduce, the cost is more than revenue earn, firm will face $1loss on it. This let the firm decide to reduce the unitproductions. When MC

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In order to maximize profits or minimize losses, a competitivefirm will produce

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