Maximizing Profits in Perfect Competition

💰Maximizing profits in perfect competition requires setting production output where marginal revenue equals marginal cost.

💲Maximizing profits does not guarantee earning economic profit, which depends on whether total revenues are greater or less than total costs.

📈Profit can be calculated as total revenues minus total costs or price per unit minus average cost per unit multiplied by quantity produced.

📉When the price per unit is greater than the average cost per unit, the firm earns a profit. When the price per unit is less than the average cost per unit, the firm operates at a loss.

⚖️In perfect competition, the firm maximizes profits by producing output at a quantity where the price is equal to the marginal cost.

Does maximizing profits always mean earning economic profit?

—No, maximizing profits means setting production output to maximize the amount of possible profit. Whether economic profit is earned depends on whether total revenues are greater or less than total costs.

How is profit calculated in perfect competition?

—Profit can be calculated as total revenues minus total costs or price per unit minus average cost per unit multiplied by quantity produced.

What happens when the price is less than the average cost per unit?

—When the price per unit is less than the average cost per unit, the firm operates at a loss.

What is the shutdown rule in perfect competition?

—The shutdown rule states that a firm should stop production of a good when the price of that good is less than the average variable cost.

What is the relationship between marginal cost and supply in perfect competition?

—The marginal cost curve is equal to the supply curve in perfect competition. The firm maximizes profits by producing output at a quantity where the price is equal to the marginal cost.

00:00[Music]

00:05In perfect competition, a company's profits or losses depend on whether the price is greater or less than the average cost of production.

00:46To maximize profits, a firm must set its production output such that marginal revenue is equal to marginal cost.

01:25Profit is equal to total revenues minus total costs or price per unit minus average cost per unit multiplied by quantity produced.

02:00When the price per unit is greater than the average cost per unit, the firm earns a profit. When the price per unit is less than the average cost per unit, the firm operates at a loss.

02:27In certain situations, it makes sense for a firm to shut down production.

03:11The firm should stop production of a good when the price of that good is less than the average variable cost.

03:28The firm maximizes profits by producing output at a quantity where the price is equal to the marginal cost.