by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How are Short-Run Decisions Based Upon Costs made in a Perfectly Competitive Market? The average cost and average variable cost curves divide the marginal cost curve into three segments. At the market price, which the perfectly competitive firm accepts as given, the...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How Does the Production Function Estimate Inputs? We’ve explained that a firm’s total costs depend on the quantities of inputs the firm uses to produce its output and the cost of those inputs to the firm. The firm’s production function tells us how much output the...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Shutdown Point on The Cost Curve? Shutting down can reduce variable costs to zero, but in the short run, the firm has already paid for fixed costs. As a result, if the firm produces a quantity of zero, it would still make losses because it would still need...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Break Even Point on the Cost Curve? Again, the perfectly competitive firm will choose the level of output where Price = MR = MC. At this price and output level, where the marginal cost curve is crossing the average cost curve, the price the firm receives...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How does Average total Cost Relate to Profit Margin? Does maximizing profit (producing where MR = MC) imply an actual economic profit? The answer depends on the relationship between price and average total cost, which is the average profit or profit margin. If the...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Marginal Revenue Curve? The marginal revenue curve shows the additional revenue gained from selling one more unit. As mentioned before, a firm in perfect competition faces a perfectly elastic demand curve for its product—that is, the firm’s demand curve is...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
Using Marginal Revenue and Marginal Costs to Maximize Profit The approach that we described in the previous section, using total revenue and total cost, is not the only approach to determining the profit maximizing level of output. In this section, we provide an...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What is the Highest Profit Point in a Perfectly Competitive Market? A perfectly competitive firm can sell as large a quantity as it wishes, as long as it accepts the prevailing market price. The total revenue depends on the quantity sold and the price charged. If the...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
How Does Raising Prices Affect Revenue? Revenue regards the total value received from selling a good or service. Total revenue is price times the quantity of goods sold. If demand for the good or service is elastic at a given price level the percentage drop in price...
by TheBusinessProfessor | Feb 23, 2025 | Economic Analysis & Monetary Policy
What are the Criticisms of the Economic Approach? The major criticisms of the economics approach to decision making include: people don’t really act in this way (they are not logical, reasonable actors in most situations); and people (includes firms and other...
