Price and Output Decisions Faced by Firms That are Not in Pure Competition

Profit margin is at all times greatest when MC=MR even though ATC is lowest elsewhere, this is what directs to incompetence in market organization that aren’t in perfect competition, for example, an oligopoly (Sullivan and Steven, 2003). This is for the reason that MC is the cost for the subsequently unit and MR is the revenue achieved for that same unit. If MC>MR then it will at all times minimize your earnings because you incur more in cost for that unit than you achieve in revenue.

Firms attain maximum earnings when marginal revenue (MR) is equivalent to marginal cost (MC), that is when the cost of making one more unit of a product or service is precisely equals to the revenue resulting from selling one additional unit.

In markets that are ideal competitive, the earnings obtainable to a solitary company in the long run is known as normal profit. However, this normal profit exists when the total revenue, TR, is same as total cost, TC. Therefore, normal profit is the least reward that is just enough to keep the capitalist supplying their enterprise (Pindyck and Rubinfeld, 2001). On the other hand, economic profit is the profit that a firm makes when revenue is greater than the total costs. Therefore, this firm attained economic profit from the second output. From the graph, it is clear that the company made a lot of high economic profit since there is a distinct difference in total revenue and total cost.

In the short run, the firm represents monopolistically competitive market structure. However, this is because marginal revenue is less than price and average revenue and all of them are decreasing with larger quantities of output (Pindyck and Rubinfeld, 2001).

However, in long run the data represents a perfectly competitive firm.  This is because the firm is trying to maximize profit by equating marginal revenue, the additional revenue made from manufacture, with marginal cost, the additional cost of production (Pindyck and Rubinfeld, 2001).

 

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