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What conditions must hold if a profit-maximizing firm produces positive output in a competitive market? |
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Answer» The following three conditions must hold if a profit maximizing firm produces positive level of output (say equilibrium output Q*) in a competitive market: (i) MR must be equal to MC at Q*. (ii) MC should be upward sloping or rising at Q*. (iii) In short run - Price must be greater than or equal to AVC. i.e.P ≥ AVC at Q*. In long run - Price must be greater than or equal to LAC. |
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