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In the short run, the perfectly competitive firm will seek the quantity of output where profits are highest or, if profits are not possible, where losses are lowest. In the long run, positive economic profits will attract competition as other firms enter the market.
Jul 17, 2023 · Determining the Highest Profit by Comparing Total Revenue and Total Cost. A perfectly competitive firm can sell as large a quantity as it wishes, as long as it accepts the prevailing market price. The formula above shows that total revenue depends on the quantity sold and the price charged.
In a free market economy, firms use cost curves to find the optimal point of production (minimizing cost). Profit maximization is the process that a firm uses to determine the price and output level that returns the greatest profit when producing a good or service.
Jul 17, 2023 · Show graphically how an individual firm in a perfectly competitive market can use total revenue and total cost curves or marginal revenue and marginal cost curves to determine the level of output that will maximize its economic profit.
Based on its total revenue and total cost curves, a perfectly competitive firm like the raspberry farm can calculate the quantity of output that will provide the highest level of profit. At any given quantity, total revenue minus total cost will equal profit.
What is the quantity that this firm will choose in the short run, and what is its economic profit or loss?
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Does a perfectly competitive firm maximize economic profit?
Does a firm make a profit at every level of output?
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What determines a firm's profit?
How can a firm maximize economic profit?
How does the total revenue curve change with increased output?
The profit maximization rule ([latex]MR=MC[/latex]) ensures that the firm is maximizing profit, but it does not ensure that the firm is making positive profits; the firm could be minimizing losses instead of making positive profits.
