L8: Profit maximisation & Perfect competition

What type of decisions are considered under profit maximization?

• Output and input decisions

• Output and shut down decisions

• Pricing and output decisions

• Pricing and marketing decisions

Match to the right formula

• Total revenue - Explicit cost

• Accounting Profit

• Total revenue - total opportunity cost

• Economic profit

• Total Revenue + Total Cost

• Profit

What does the term "opportunity cost" refer to in economics?

• A) The cost of the next best alternative use of resources when one choice is made over another.

• B) The total amount of money spent on a project.

• C) The profit gained from the chosen investment.

• D) The interest rate applied to business loans.

In the context of profit maximization, what does the second step, the shutdown decision, involve?

• Deciding whether to increase production

• Determining if it is more profitable to continue production or to shut down

• Evaluating employee performance

• Investing in new technology

Categorize each point to either MC or MR

Groups:

(a) MC

,

(b) MR

,

(c) MP

• MR - MC

• ∆TC/∆Q

• ∆TR /∆Q

Under what condition should a firm consider shutting down in the short run?

• When total revenue is less than fixed costs

• When price is less than average variable cost

• When price is greater than average total cost

• When total revenue exceeds variable costs

What does the intersection point of the supply (S) and demand (D) curves represent?

• The maximum price a firm is willing to pay for goods.

• The equilibrium price and quantity in the market.

• The lowest price at which a product will be supplied.

• The break-even point for the firm.

Shut down if: ​ (a)  

Exit industry if: ​ (b)  

• P < AVC in SR
• P < ATC in LR
• P > AVC in SR
• P > AVC in LR

Label the Graph

a

b

c

Output decision

Economic profit

Shutdown decision

Allocative efficiency occurs when...

• Where price is equal to marginal cost: P = MC

• Where price is higher than marginal cost: P > MC

• Where price is lower than marginal cost: P < MC

• Where price is equal to marginal revenue: P = MR