M3A2

The MC=MR rule is “The principle that a firm will maximize its profit (or minimize its losses) by producing the output at which marginal revenue and marginal cost are equal, provided product price is equal to or greater than average variable cost. (McConnell, 2010) According to our text the MR=MC rule applies to all firms whether they are purely competitive, monopolistic, monopolistically competitive or oligopolistic. (McConnell, 2010) 3. Using Microsoft Excel, graph the data in Columns 9 and 10. 4. The profit maximizing or (loss minimizing) output for this firm is 9.

That is the last output quantity where the marginal revenue ($165) exceeds the marginal cost ($162). There is an economic profit after producing more than a quantity output of 3. This is the point where Total Revenue exceeds the Total Cost. 5. A firm in pure competition is considered a “pricetaker” because a firm that is in pure competition cannot affect their product’s price changing the amount of the product that it sells. They can only maximize the product’s economic profit (or minimize its loss) by adjusting its output. (McConnell, 2010) 6. Table 2 Output| Price| Total Revenue| Profit or Loss|

Level| | | | 0| 165| 0|  | 1| 165| $165. 00| -73| 2| 165| $330. 00| -8| 3| 165| $495. 00| 70| 4| 165| $660. 00| 160| 5| 165| $825. 00| 237| 6| 165| $990. 00| 302| 7| 165| $1,155. 00| 355| 8| 165| $1,320. 00| 382| 9| 165| $1,485. 00| 385| 10| 165| $1,650. 00| 362| Profit or Loss = Total Revenue – Total Price (McConnell, 2010) 7, The breakeven point for this firm is 3 Because at an output of 2 they still have an $8 loss but at an output of 3 they make their first profit. Since they are in pure competition they should operate at level of 9 because that output is the point where their profit is the greatest.

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