You Are Running a Business in a Perfectly Competitive Market

question 163

Essay

You are running a business in a perfectly competitive market.Your product sells for $5 and your marginal costs rise as output rises.
(a)If the cost of producing another unit of output is $4,what should you do? What will happen to your profit?
(b)If the cost incurred from your last unit of output produced is $6,what has happened to your profit? What should you do about this?
(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:

Social Loafing

The phenomenon where individuals exert less effort to achieve a goal when they work in a group than when they work alone.

Evaluation Apprehension

Anxiety or concern about being judged or evaluated by others.

Free Riding

A situation where individuals benefit from resources, goods, or services without contributing to the cost or effort involved.

Promotional Ideas

Creative concepts or strategies designed to increase awareness or sales of products or services.