# 8.2 How perfectly competitive firms make output decisions

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By the end of this section, you will be able to:
• Calculate profits by comparing total revenue and total cost
• Identify profits and losses with the average cost curve
• Explain the shutdown point
• Determine the price at which a firm should continue producing in the short run

A perfectly competitive firm has only one major decision to make—namely, what quantity to produce. To understand why this is so, consider a different way of writing out the basic definition of profit :

Since a perfectly competitive firm must accept the price for its output as determined by the product’s market demand and supply, it cannot choose the price it charges. This is already determined in the profit equation, and so the perfectly competitive firm can sell any number of units at exactly the same price. It implies that the firm faces a perfectly elastic demand curve for its product: buyers are willing to buy any number of units of output from the firm at the market price. When the perfectly competitive firm chooses what quantity to produce, then this quantity—along with the prices prevailing in the market for output and inputs—will determine the firm’s total revenue, total costs, and ultimately, level of profits.

## Determining the highest profit by comparing total revenue and total cost

A perfectly competitive firm can sell as large a quantity as it wishes, as long as it accepts the prevailing market price. Total revenue is going to increase as the firm sells more, depending on the price of the product and the number of units sold. If you increase the number of units sold at a given price, then total revenue will increase. If the price of the product increases for every unit sold, then total revenue also increases. As an example of how a perfectly competitive firm decides what quantity to produce, consider the case of a small farmer who produces raspberries and sells them frozen for $4 per pack. Sales of one pack of raspberries will bring in$4, two packs will be $8, three packs will be$12, and so on. If, for example, the price of frozen raspberries doubles to $8 per pack, then sales of one pack of raspberries will be$8, two packs will be $16, three packs will be$24, and so on.

Total revenue and total costs for the raspberry farm, broken down into fixed and variable costs, are shown in [link] and also appear in [link] . The horizontal axis shows the quantity of frozen raspberries produced in packs; the vertical axis shows both total revenue and total costs, measured in dollars. The total cost curve intersects with the vertical axis at a value that shows the level of fixed costs, and then slopes upward. All these cost curves follow the same characteristics as the curves covered in the Cost and Industry Structure chapter.

definition of economics
hi guys can someone tell me all the economic policies
Tanaka
monetary and fiscal policy
Zz
we have 5 but the keys one are monetary, fiscal and physical
Souley
okay thank you
Tanaka
anyone with an idea of what type of inflation Zimbabwe is facing currently. Where a good used to be $1 now costing$3
Tanaka
It is hyper inflation
okay can I have an explanation of that type of inflation
Tanaka
hyper inflation is the inflation where price rises so fast causing damage to the country
Peter
You mean like the damage that my girlfriend caused to my heart?
Neil
shaikh
No I'm just joking
Neil
Lolz
Neil
How have you been Shaikhji
Neil
hi
Yusifu
Peter Ibeto you are right about hyper inflation. Hyper inflation is also a type of inflation in which general price level increase between 20-100%
The
hyper inflation totally destroys the monetary system of the country
The
Neil sorry
The
k..Neil..I'm good
shaikh
Lmao Joker in playin
Neil
*Im
Neil
hi
JUDE
hello guys
Sele
the country economy
Peter
hyper inflation is a kind of inflation that is uncontrollable.
so therefore, if the price level increases between 20-100'/. it means inflation can not be controlled.
what is price determination
This is the interaction between the forces of demand and supply, in order to establish the general price of goods and services.
Ejikeme
where is it?
Elbee
it is price determination
oh okay, got it
Elbee
what is the difference between monopoly and monopolistic
The difference is that monopoly is only one seller's or producer's market, while monopolistic has the characteristics of pure monopoly and perfect market.
You're right. but it is imperfect market not perfect market
The
I disagree
it is perfect market
oh. it's true it perfect market
The
yes
Ejikeme
Thanks for being very contributive.
I'm not
The
monopoly involve single seller with product with no close substitute while monopolistic involve many seller selling differentiated product with close substitute by not perfect substitute.
evelyn
*but
evelyn
Monopoly refers to a single seller dominating the whole market by selling his/her unique product. While, Monopolistic refers to the competitive market, where their are few sellers in the market offering near substitutes to the customers
monopoĺistic have large number of seller not few seller
evelyn
they have both large numbers of sellers and buyers
sheron
Ok, thanks for the correction
you welcome
sheron
monopoly -where a single seller ,sells products with no close substitute to a large number of buyers while monopolistic competition -where many sellers offers differentiated products to large number of buyers .
Ejikeme
guys please I'm in need of something like this but in logic and critical thinking any idea please...
Young
what do you need exactly ....features of a monopolistic market?...or just a defination?
sheron
here is based on economics but I need logic and critical thinking as this
Young
monopolistic does not have low number of sellers
The
sorry. monopolistic doesn't have large number of sellers. it had few sellers and a large amount of buyers
The
it's in a competitive market that you will find a larger number of sellers
The
yes thus why monopolistic market structure have some features of perfect competitive market and some features of monopoly
evelyn
few seller are in oligopoly not in monopolistic
evelyn
perfect market is a market where there are many seller and buyers who cannot influence the prices of goods and services because they are many.
Asatu
what is the diference durable consumer and non durable consumer
Xasan
hello
Xasan
Ibrahim...is it durable consumer or durable product?
shaikh
durable goods are those goods which do not wear out quickly and last for a long time. eg cars..appliances non durable goods are those goods that have a short life span..eg food products
sheron
what is the main of learning economics
Xasan
durable goods are assumed to never wear out (i.e. bricks) non-durable goods are also known as consumables (i.e. fuel and food)
William
means u wan ask y v study economics
shaikh
Probably
Neil
We study economics to better understand how we can allocate scarce resources to unlimited demand.
Neil
Furthermore, the concepts of Economics can be applied anywhere, from day to day life to happiness. So the importance of Econ is infinite
Neil
What is the PPc
vicky
the ppc curve is a curve that shows various combination if goods that an economy can produce with it available resources and technology at a period of time
Josu
Josu
what is income
Aisha
i mean Nstional income accounting?
Aisha
yes
francis
when does dimishing return set 0
Citizen
National income accounting is the measurement of all goods and services produced in a country
The
diminishing return start to operate when marginal product is at the maximum
evelyn
diminishing marginal returns/product sets at zero when total product is at its maximum
Romeo
okay
Citizen
g
Zz
hi my name is Ibeto Chukwudum I love economics but am studying agricultural back then when am in ss1
Peter
please between monopoly and monopolistic which one is the best
Peter
monopolistic competition is the best
you will also do agricultural economics
monopolistic compétition is the best
Josu
no
Josu
Peter
because it sometimes comprises of large numbers of sellers/producers, free entry and exit, etc and these conditions make the sellers/producers to be a price taker(market price) not a price maker(influencing/controlling price). so upon this background, I conclude that it is the best.
thanks
Peter
law of demand's limitations and assumptions
what?
ehtesham
The limitation is the graphical representation of the law of demand which shows only two variables which is price and quantity demanded. it doesn't show other factors that influence quantity demanded such as income and price of other commodities
The
sorry I sent it thrice. it's because of bad connection
The
limitation of law of demand is exceptional demand where there is direct relationship between price and quantity demanded instead of inverse relationship btn price and quantity demanded. assumptions include no change in technology, no change in income, constant distribution of income.
evelyn
Oh. Evelyn that's true. Maheen my answer is wrong
The
Oh. Evelyn that's true. Maheen my answer is wrong
The
limitations it is not apply on snobbish people or very expressive good like diamond and also not apply on very cheap good like slat
Zz
assumption fashion taste weather papulation should not be changed otherwise law will be wrong
Zz
what is consumer equilibrium in two case commodity illustrate with diagram.....plz reply asap plz it's urgent
a consumer will be in equilibrium when he spent his income on different good in such way that marginal utilities of each product will become equal
Zz
I guess investments in mutual funds could be its example?
any one who can tell me the best topic thesis in the field of economic. use 2 macro-economic variables.
Husein
national income as context to gst and demonitization and the inflation in current scenario lik raises petrol price and ruppee b cheap ..might b good for thesis
shaikh
when give the production of bread and pizza. where by bread produces 10 units and pizza 5 units. how do you calculate for the opportunity cost for bread and pizza
6. The countries of Figistan and Blah are small island countries in the South Pacific. Both produce fruit and timber. Each island has a labor force of 1,200. The following table gives production per month for each worker in each country. a. Which country has an absolute advantage in the product
6. The countries of Figistan and Blah are small island countries in the South Pacific. Both produce fruit and timber. Each island has a labor force of 1,200. The following table gives production per month for each worker in each country. a. Which country has an absolute advantage in the producti
Bablu
We need to know the values to help
Neil
BASKETS OF FRUIT BOARD FEET OF TIMBER Figistan workers 10 5 Blah workers 30 10 Productivity of one worker for one month
Bablu
basket of fruit |basket of timber Figistan workers 10 5 Blah workers 30 10
Bablu
a. Which country has an absolute advantage in the production of fruit? Which country has an absolute advantage in the production of timber? b. Which country has a comparative advantage in the produc- tion of fruit? of timber? c. Sketch the ppf’s for both countries. d. Assuming no trading betwe
Bablu
where the table
Souley
my own idea is that we should divide the number of baskets of fruits and timber by labour force
The
Is it true. can somebody correct me
The
No not true
Neil
Absolute Advantage is determined by the numbers
Neil
You can't just divide it or something
Neil
For example, US makes 8 Cars and 6 Fish Canada makes 2 cars 3 fish US has absolute advantage in this scenario
Neil
Rawat thank you
The
Neil Rawat but a country is said to have absolute advantage over another country when it spends less time producing a commodity
The
For example, 8 cars are produced in one hour. how can we calculate the amount of time for producing one car
The
There are two types of Questions
Neil
Input and Output. The one that you just put and Bablu asked "Produced in one hour" or "in one month" is Input. Time is a resource. If it said this is just how much they produce, then it's output.
Neil
Shaikh, correct me if I'm wrong and Bablu I'll try to do the problem by 7:30 EST
Neil
Dude Bablu I think there's something wrong either with the question or the way you set that problem up
Neil
Cuz both countries can't specialize in both things
Neil
where is the following table?
ian
Figistan workers 10.........5 Blah Workers 30.............. 10
Neil
Neil Rawat time is not given in the question it's only the quantity of baskets of fruits and timber produced
The
The question says the labour force is 1,200.
The
i don.t understand plz explain esaily
which 1u don't understand
ubong
marginal cost for what
Xasan
definition of economics
Abdal
Marginal cost is the additional increase in quantity produced as a result of increasing total cost
The
MC=dTC/dQ i.e change in total cost as a result of change in quantity produced
The
What happens to the quantity of dollars when the demand for it increases and supply decreases? Does the quantity or volume remain the same?
Anamaya
price of dollars will increase
Harsh
what are the principles of economics
Economics is a social science that studies how people satisfy unlimited wants with scarce resources. It involves the analysis of choice and trade through the use of intuitive graphs and mathematical elements. The discipline is divided into two sections: microeconomics (micro) and macroeconomics(macr
Zain
micro and macro principles
Souley
I want to know about microeconomics principles
Gajendra
micro study economics partly eg hw mankind's makes decisions
Souley
explain clearly
Gajendra
it focuses on the actions of Individual agent within an economy like households,business etc
Souley
I understand
Gajendra
good
Souley
hellow guys
Paul
hi
Souley
hi
Gajendra
Hi
Souley
how are you guys doing
The
Helloooooo
Steven
Hi
Souley
Economics is difficult
The
yes, you can say but the positive thinkers and doers can not say like it.
Gajendra
Yeah. I'm pessimistic
The
and I procrastinate too much
The
is true
Souley
yea hello
Kojo
what's the scope for an economist?
Aman
I'm having exams soon but I barely know the concepts, monopoly is difficult
Steven
I can help with assignments
Nhamo
Gajendra or anybody can you advice me on how I can improve on studying Economics
The
should I read a topic everyday. it will be difficult because I have other courses
The
what's unemployment
increase in inflation
Zain
increase in jobless peaople
Zain
who are capable of doing job
Zain
hi
Vijay
hi
Zain
distinguish between substitution effect and income effect
hello
Kojo
hi
Peter
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Abdal
Hi
Anamaya
Hello
Darlington
hi
Abdal
Who is an economist
Darlington
Hi
Ihtisham
hi
Peter
hi
Abdal
yes
Fazal
still studying
sean
The substitution effect is the change in consumption patterns due to a change in the relative prices of goods.
Moshood
Income effect is the change in consumption patterns due to the change in purchasing power.
Moshood
still freshman studying at Tubman University
Emmanuel
db awlad 97ab ghir ghatchr7ou liya chno wa93 hna wachmn level hada wla ghan7iw chi wld 9ahba fikom
Brahim
hi
Chidi
hi
bola
hey
cherie
hlw
God
Hi
Owusu
Hi
Patricia
hi
Rod
hi
shaikh
what is agriculture?
Emmanuel
Srsly
Neil
Hi everyone.
Royal
Economic is a subject which study buying and selling.
Royal
can u elaborate more?
Dazy
it is the study of the wealth of of a nation
It can also be defined as the social science that studies how the available scarce resources can be distributed to satisfy unlimited human want
elo house !
I ave a question too
hi
Prtj
guys I have questions which I am not able to solve could you guys help me
Prtj
kartik
Gene
What the difference between economics and economics education?
Rasaq
economics is all about natural resources and how they are distributed to satisfied human wants
Souley
Almsot the same
Steven
The exchange of produce and services among different countries.
Anamaya
the exchange of good & services across international boundaries
WILSON
Nusrat
Compare and contrast between Natural and Artificial Resources and their ultimate impacts in an economy. Give one example to support your discussion.
Exemple: Diamant or uranium, fer, calcaire
how does interest rate affect aggregate output
what is Keynesian theory
kelvin
need a curves for typical isoquost and isoquant
kelvin
what is isoquant
kelvin
isoquat is a curve shows differnt combinations of two inputs which can produce same level of output
Majid
examples of giffen goods
Getrude
then what isoquost
Peter
, if the price of an essential food staple, such as rice, rises it may mean that consumers have less money to buy more expensive foods, so they will actually be forced to buy more rice.
Peter
that's an example
Peter
majid Khan that's the wrong definition of isoquant
The
you are defining isocost
The
isocost curve is a locus of points that shows the different combinations of commodities purchased by a consumer with a fixed budget
The
The change in fiscal policy leads to an increased level of output and interest rates is because an increase in government expenses directly affects aggregate demand. A decline in taxes result in more disposable income, consequently leading to a rise in consumption expenditure.
Peter
dats for kelvin
Peter
dats d answer for the audio how does interest rate affect aggregate output
Peter
question not audio
Peter
u are right joker
Peter
what is journal entry?
Abel