Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 5 Firm Behavior and the Organization of Industry
Chapter 14 of 36 Firms In Competitive Markets
Section 4 of 24
…
Table 1 here
…
Like all businesses, a firm in a competitive market tries to maximize profit.
Consider an example competitive firm, the Vaca Family Dairy Farm.
The Vaca Farm, per Table 1
· produces a quantity of milk, Q
· sells each unit (gallon) at the market price, P
· the farm's total revenue is P x Q
If a gallon of milk sells for $6 and the farm sells 1,000 gallons, its total revenue is $6,000.
…
Because the Vaca Farm is small compared to the market for milk, it must take the price as given by the market.
If the Vacas double the amount of milk they produce to 2,000 gallons
· the market price of milk remains the same
· their total revenue doubles to $12,000
Table 1 shows revenue for the Vaca Family Dairy Farm at various quantities of milk produced and sold.
Columns 1 and 2 show
· the amount of output the farm produces
· the price at which it sells its output, given by the market, $6 a gallon
Column 3 is the farm's Total Revenue, TR = P x Q
… …
Comments
Post a Comment