KRUGMAN'S MICROECONOMICS for AP* Introduction to Perfect Competition Margaret Ray and David Anderson Micro: Econ: 22 58 Module.

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KRUGMAN'S MICROECONOMICS for AP* Introduction to Perfect Competition Margaret Ray and David Anderson Micro: Econ: Module

What you will learn in this Module : How a price-taking firm determines its profit-maximizing quantity of output. How to assess whether or not a competitive firm is profitable.

Profit Maximization in PC Optimal output rule: MR=MC produce the quantity where MR=MC and profit will be maximized!

Production and Profits Firms are price-takers P = MR MR = D = AR Profit maximization occurs at the output level where MC = P

Profit Maximization in PC The profit maximizing level of output is found where P = MC on the graph.

Calculating Profits Total profit π= TR – TC If TR>TC; positive profit If TR < TC; negative profit Profit per unit If P > ATC; positive profit If P < ATC; negative profit

Table 58.1 Short-Run Costs for Jennifer and Jason’s Farm Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers

Figure 58.1 The Price-Taking Firm’s Profit-Maximizing Quantity of Output Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers

Table 58.2 Short-Run Average Costs for Jennifer and Jason’s Farm Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers

Figure 58.2 Costs and Production in the Short Run Ray and Anderson: Krugman’s Economics for AP, First Edition Copyright © 2011 by Worth Publishers