I NEED AN EXPERT IN MICROECONOMICS IF YOU ARE KNOWLEDGEABLE FOR THIS ESSAY QUEST
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I NEED AN EXPERT IN MICROECONOMICS IF YOU ARE KNOWLEDGEABLE FOR THIS ESSAY QUESTION... I WILL RATE UP TO 400-500 POINTS..
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It is stated that we always produce where Marginal Cost (MC) equals Marginal Revenue (MR) because that is where our Profit Maximizing (or Loss Minimizing) point is.
1.Tell me why we always produce where MC=MR, what would we do if MC is less than MR (i.e. increase or decrease production and why), and what we do if MC is greater than MR (i.e. increase or decrease production and why).
2.Tell me why in a Perfect Competition Model MR is equal to the price but in a Monopoly and a Monopolistic Model MR is less than price.
3.In a Monopoly and a Monopolistic Model we just said MR is less than price. Then if we are a producer and have found out how much to produce to maximize profit how do we determine what price to sell our product?
4.Once we find our Profit Maximizing point, and determined our price and how many to produce, how do we determine if we are making a profit or making a loss?
Explanation / Answer
1. Firms produce only up to the point where MR = MC in order to obtain maximum profits. When the cost of producing an additional unit of good equals to the revenue earned from selling it, this is where the firms stop producing more goods.
When MC<MR, it means that cost of producing an extra unit of good is less than the revenue that can be earned from selling it. So, firms produce more units of goods so that the MR starts increasing and a point is achieved where MC = MR.
Likewise, When MC>MR, it means that cost of producing an extra unit of good is more than the revenue that can be earned from selling it. So, firms stop producing any further units of goods so that the MC comes down and a point is achieved where MC = MR.
2. Perfectly competitive firms are price takers in the market. Since there are a lot of firms operating in the market and there is high level of competition, all firms find it mutually profitable to maximize their profits at the point where MR = P. This will lead to uniform pricing in the market with maximized profits.
However, in case of monopoly, since the number of sellers is very less, or in fact there is one seller catering to a large number of buyers. He will therefore find it profitable to extract the entire consumer surplus and earn the maximum profits. As a result of third, it sets its price higher than the MR.
3. The profit maximizing point is calculated by setting the MR = MC.
4. One can check whether the firms are making profits or not by Calculating the difference between TR and TC. If TR-TC is positive, then firms are in profit. If TR-TC is negative, the firms are in loss. If TR = TC, the firms are breaking even.
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