![]() ![]() Profit-maximization condition: The firm’s profit-maximizing condition is MR = MC.It is also the marginal revenue, average revenue and the demand curve (perfectly elastic). The horizontal line shows the market price of 5.71.MC curve intersects the ATC curve at its minimum point.Beyond that point (optimal quantity), increasing the output quantity increases the cost. The cost of selling oranges comes down as the quantity increases until it reaches a minimum. Generally, cost curves are U-shaped because of the law of diminishing returns.This graph plots cost per unit on the y-axis and output quantity on the x-axis. ![]() We would solve for the equilibrium quantity and price by using the equation: P = 25 – 0.5Q D = -2 + 0.2Q S. Say for a given industry the demand function is: P = 25 – 0.5Q D and the supply function is P = -2 + 0.2Q S. To determine the equilibrium price and quantity, we must equate market supply and demand functions. Optimal Price and Output in Perfectly Competitive Markets Economic profit = total revenue minus opportunity cost.ģ.3.In this case, the mother staying home had given up the opportunity to work, and with it an income of $90,000. For example, if a stay-at-home mom was employed, she would earn $90,000 a year. Opportunity cost: This is the value of the next best opportunity that is foregone when another alternative is chosen.Economic costs: These include all explicit costs and implicit opportunity costs that are required to acquire a resource or keep it in production.The market supply curve is the sum of the supply curves of the individual firms. When market prices increase, firms supply greater quantities. Supply Analysis & Optimal Price and Optimal Output in Perfectly Competitive Markets LM02 The Firm and Market Structures Part 2Ħ. ![]()
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