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Maximizing Profit in Perfect Competition: Strategies for Success

Explore how price-taking firms optimize output quantity and assess profitability in competitive markets. Learn about profit maximization, production, and calculating profits in perfect competition scenarios.

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Maximizing Profit in Perfect Competition: Strategies for Success

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  1. Module Micro: Econ: 22 58 Introduction to Perfect Competition • KRUGMAN'S • MICROECONOMICS for AP* Margaret Ray and David Anderson

  2. What you will learnin thisModule: • How a price-taking firm determines its profit-maximizing quantity of output. • How to assess whether or not a competitive firm is profitable.

  3. Profit Maximization in PC Optimal output rule: produce the quantity where MR=MC and profit will be maximized!

  4. Production and Profits • Firms are price-takers • P = MR • MR = D = AR • Profit maximization occurs at the output level where MC = P

  5. Profit Maximization in PC The profit maximizing level of output is found where P = MC on the graph.

  6. Calculating Profits • Total profit • π= TR – TC • If TR>TC; positive profit • If TR < TC; negative profit • Profit per unit • If P > ATC; positive profit • If P < ATC; negative profit

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