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:

Biological Perspective

An approach to psychology focusing on physical and biological bases of behavior, including genetic, hormonal, and neurophysiological processes.

Amygdala

Brain structure located near the hippocampus, responsible for fear responses and memory of fear.

Black Bile

In ancient and medieval physiology, it was one of the four bodily humors, believed to be associated with melancholy.

Ancient Greeks

A civilization belonging to a period of Greek history that lasted from the Dark Ages (around 1200 B.C.) to the end of antiquity (circa 600 A.D.). Known for their advancements in philosophy, science, and the arts.