You Are Running a Business in a Perfectly Competitive Market

question 20

Essay

You are running a business in a perfectly competitive market. Your product sells for $5 and your marginal costs rise as output rises. What should you do in the two situations described below? What general rule do the above examples suggest about how a firm should determine the level of output to produce so as to maximize profit?
(a) The additional cost of producing another unit of output is $4. What should you do? What will this do to your total profit?
(b) The additional cost incurred from your last unit of output produced is $6. What should you do? What will this do to your total profit?
(c) What general rule do the above examples suggest about how a firm should determine the level of output to produce so as to maximize profit?

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Definitions:

Intestate

The condition of having died without a valid will, leading to the distribution of the deceased's estate according to state laws.

Probate

A rephrased definition: The court-supervised process of authenticating a deceased person’s will, settling their debts, and distributing their estate to the rightful heirs.

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