Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.
PART 5 Firm Behavior and the Organization of Industry
Chapter 13 of 36 - Firms In Competitive Markets
Section 8 of 24
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Per Table 2 and Figure T2, if Vaca Farm increases production quantity Q from 5 to 6 gallons of milk total profit decreases.
The sixth gallon would have
· a marginal revenue (MR, column 5) of $6
· a marginal cost (MC, column 6) of $7
Producing the sixth gallon would reduce column 4 total profit by $1, from $7 to $6
So, the Vacas do not produce more than 5 gallons.
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Restated from Chapter 1, the Ten Principles of Economics:
1: people face trade-offs
2: the cost of something is what you give up to get it
3: rational people think at the margin
4: people respond to incentives
5: trade can make everyone better off
6: markets are usually a good way to organize economic activity
7: governments can sometimes improve market outcomes
8: a country's standard of living depends on its ability to produce goods and services
9: prices rise when the government issues too much money
10: society faces a short-run trade-off between inflation and unemployment
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One of the Ten Principles of Economics, #3: rational people think at the margin.
If MR becomes more than MC the Vacas should increase milk production, because total profit increases.
If MR becomes less than MC the Vacas should decrease milk
production, because total profit decreases.
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When the Vacas and all firms think at the margin, they
· make incremental adjustments to the level of production
· are naturally led to produce the profit-maximizing quantity
Here, for the Vacas the profit-maximizing quantity is 4 or 5 units.
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production level
seisan reberu
生産レベル
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