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 9 of 24
…
Shown are
· marginal cost (MC) curve
· average total cost (ATC), includes fixed and variable costs
· average variable cost (AVC) curve
· market price (P) = average revenue (AR) = marginal revenue (MR)
At the quantity Q1
· MR1 exceeds MC1
· so raising production increases profit
At the quantity Q2
· MC2 exceeds MR2
· so reducing production increases profit
The profit-maximizing quantity QMAX is found where
· the horizontal P=MR line
· intersects the MC curve
… …
illustrates the same information
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