# 8.2 How perfectly competitive firms make output decisions  (Page 9/28)

 Page 9 / 28

As discussed in the chapter on Demand and Supply , many of the reasons that supply curves shift relate to underlying changes in costs. For example, a lower price of key inputs or new technologies that reduce production costs cause supply to shift to the right; in contrast, bad weather or added government regulations can add to costs of certain goods in a way that causes supply to shift to the left. These shifts in the firm’s supply curve can also be interpreted as shifts of the marginal cost curve. A shift in costs of production that increases marginal costs at all levels of output—and shifts MC to the left—will cause a perfectly competitive firm to produce less at any given market price. Conversely, a shift in costs of production that decreases marginal costs at all levels of output will shift MC to the right and as a result, a competitive firm will choose to expand its level of output at any given price. The following Work It Out feature will walk you through an example.

## At what price should the firm continue producing in the short run?

To determine the short-run economic condition of a firm in perfect competition, follow the steps outlined below. Use the data shown in [link] .

Q P TFC TVC TC AVC ATC MC TR Profits
0 \$28 \$20 \$0 - - - - - -
1 \$28 \$20 \$20 - - - - - -
2 \$28 \$20 \$25 - - - - - -
3 \$28 \$20 \$35 - - - - - -
4 \$28 \$20 \$52 - - - - - -
5 \$28 \$20 \$80 - - - - - -

Step 1. Determine the cost structure for the firm. For a given total fixed costs and variable costs, calculate total cost, average variable cost, average total cost, and marginal cost. Follow the formulas given in the Cost and Industry Structure chapter. These calculations are shown in [link] .

Q P TFC TVC TC
(TFC+TVC)
AVC
(TVC/Q)
ATC
(TC/Q)
MC
(TC 2 −TC 1 )/
(Q 2 −Q 1 )
0 \$28 \$20 \$0 \$20+\$0=\$20 - - -
1 \$28 \$20 \$20 \$20+\$20=\$40 \$20/1=\$20.00 \$40/1=\$40.00 (\$40−\$20)/
(1−0)= \$20
2 \$28 \$20 \$25 \$20+\$25=\$45 \$25/2=\$12.50 \$45/2=\$22.50 (\$45−\$40)/
(2−1)= \$5
3 \$28 \$20 \$35 \$20+\$35=\$55 \$35/3=\$11.67 \$55/3=\$18.33 (\$55−\$45)/
(3−2)= \$10
4 \$28 \$20 \$52 \$20+\$52=\$72 \$52/4=\$13.00 \$72/4=\$18.00 (\$72−\$55)/
(4−3)= \$17
5 \$28 \$20 \$80 \$20+\$80=\$100 \$80/5=\$16.00 \$100/5=\$20.00 (\$100−\$72)/
(5−4)= \$28

Step 2. Determine the market price that the firm receives for its product. This should be given information, as the firm in perfect competition is a price taker. With the given price, calculate total revenue as equal to price multiplied by quantity for all output levels produced. In this example, the given price is \$30. You can see that in the second column of [link] .

Quantity Price Total Revenue (P × Q)
0 \$28 \$28×0=\$0
1 \$28 \$28×1=\$28
2 \$28 \$28×2=\$56
3 \$28 \$28×3=\$84
4 \$28 \$28×4=\$112
5 \$28 \$28×5=\$140

Step 3. Calculate profits as total cost subtracted from total revenue, as shown in [link] .

Quantity Total Revenue Total Cost Profits (TR−TC)
0 \$0 \$20 \$0−\$20=−\$20
1 \$28 \$40 \$28−\$40=−\$12
2 \$56 \$45 \$56−\$45=\$11
3 \$84 \$55 \$84−\$55=\$29
4 \$112 \$72 \$112−\$72=\$40
5 \$140 \$100 \$140−\$100=\$40

Step 4. To find the profit-maximizing output level, look at the Marginal Cost column (at every output level produced), as shown in [link] , and determine where it is equal to the market price. The output level where price equals the marginal cost is the output level that maximizes profits.

how environment affect demand and supply of commodity ?
Wht at the criteria for market ?
Amos
what is difference between monitory policy and fiscal policy?
monetary policy is a policy thrust by National Govt(CBN) to influence government spending, purchase &taxes
Frank
necessity of economics
I will say want,choice,opportunity cost,scarcity,scale of preference
Alao
what is monopoly market.How price output are determined under monopoly market
bisham
b) Monopoly market is an impecfect market where s single firm having the innovation to produce a particular commodity.Prices are determined through output since there are no other competitive.
Frank
Monopoly market:firm has market power & does not respond to market price
Frank
Explain the process of price determination under perfect competition market with suitable diagram
Price determination under perfect competition via this process :firms have no market power to influence price rather firms respond to market price.
Frank
price is different from demand- demand is amount of commodity
demand is amount /quantity of commodity a potential buyer is willing to buy at a given price at market
Frank
demand is a desire of customer on commodity with the ability to pay it and willing to buy it at given price of commodity
Harika
demand is price of what
show that shortrun average cost
what is economics
what is money
Mbah
what is money
Mbah
Difine macro economics
agaba
money is a medium of exchange between goods and services,maybe inform of currency.
Wesonga
Economics is study of how human beings strive to satisfy numerous wants using limited available resources.
Wesonga
how do you find the maximum number of workers the firms should employ order to produce where there are increasing returns
Jane
what are implications of computing national income?.
agaba
pl
MUDASIRU
what is the formulae for calculating national income
MUDASIRU
it calculated by value added method
Praveen
classify the production units like agriculture, banking, transport etc
Praveen
money is anything that is generally acceptetable for human
Ogbaji
Estimate the net value added(NVA) at fixed cost by each industrial structure
Praveen
definition of unemployment
what are the causes of unemployment?
The main causes of unemployment are listed below. 1. Frictional unemployment 2. Cyclical unemployment 3. Structural unemployment
assani
We can also categorize the causes on a broader sense as: 1. Political and 2. Social cause As unemployeement root causes are embaded in this two.
Yonathan
would opportunity cost exist if there was no scarcity?
assani
yes just because the opportunity cost arose when there is Alternative to choose among the alternatives.
I am thinking that, if our resources were unlimited, then there wouldn't be any need to forgo some wants. Hence the inexistence if opportunity cost
assani
Politics
Job
politics has done what?
assani
consider time assani
Mary
I'm Emmanuel,...I taught the main cause is the change in gov't.
Emmanuel
...Lack of capital to set up a firm respectively
Emmanuel
🙈
Emmanuel
I would like to bring in Educational levels can also be the cause the cause of the problem respectively
Emmanuel
I think the main causes of unemployment is lack of INFRASTRUCTURAL DEVELOPMENT OVER POPULATION OVER DEPENDENT ON GOVERNMENT LACK OF SELF EMPOWERMENT...
ananti
lack of skills among the new generation is the serious issue.
Vishal
Where I come from , I don't see why education or personal aspects seem to do with unimployment, technically the motivation and eigerness in all works of live is there , dispite the cultural influence and physical bearriors;the thing we lacking is Government Support and open market ethics.
Joe
sorry about that-(repation). We have a over powering ethical political system that's displacing the marketing asspects of economy and causing large scale unemployment right across the board...
Joe
can someone Explain Expansionary Monetary Policy and Contractionary Monetary Policy Using one of the instrument of Monetary Policy? Please am kinda lost here?. ta
using a graph show the case of substitute and compliment goods
can anyone give me a simple explanation to Five Sector Macroeconomics?
Emmanuel
Can someone please define what economics is
economics simply is a social science subject that study human behavior.
dajan
economics is a social science which studies human behaviour as a relationship between ends and scarce means that has alternative uses
Alao
Can someone please tell me how to calculate GDP
Emmanuel
emmanual kapal to calculate GDP (Gross Domestic Product) has three method in calculating it (1)income approach (2) expenditure approach (3) value added method
Alao
thanks Alae
Emmanuel
u are welcome
Alao
in basic terms economics is revered to as battery system, it date back to when Men sees the need to exchange sapless goods and produce to gain , either wealth , basic necessities or to establish trading ties for personal benefit or social asspects in terms of coexistence and continuity, future .
Joe
what is the law of demand
keep other thing constant, when the price increases demand decrease when the price decreases demand increases of the commodity.
sj
all things being equal,quantity demanded decrease as price increase and increase as price decrease
Seth
there's practial joke to it ..." the higher the demand ; scarcity, increase in production and drop in quality"... quite the controversy - for example China vs Europe, United States and we are all boxed up in between somewhere...
Joe
Other thing remain constant the low price of commodity the high quantity of commodity and vice versa is true
Baraka
Explain Effective demand
What is effective demand
Anita
like Modi is in demand...best example of effective demand
Pranav
Don't get you
Anita
Anita you mean you don't get me or who?
Onyeking
level of demand that represents a real intention to purchase by people with the means to pay
Pranav