Preview

Feasability

Powerful Essays
Open Document
Open Document
2689 Words
Grammar
Grammar
Plagiarism
Plagiarism
Writing
Writing
Score
Score
Feasability
Chapter

7
The Production Process: The Behavior of Profit-Maximizing Firms

Prepared by:

Fernando & Yvonn Quijano

© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair

CHAPTER 7: The Production Process: The Behavior of Profit-Maximizing Firms

The Production Process: The Behavior of Profit-Maximizing Firms

7
Chapter Outline
The Behavior of ProfitMaximizing Firms Profits and Economic Costs Short-Run versus Long-Run Decisions The Bases of Decisions: Market Price of Outputs, Available Technology, and Input Prices The Production Process Production Functions: Total Product, Marginal Product, and Average Product Production Functions with Two Variable Factors of Production Choice of Technology Looking Ahead: Cost and Supply Appendix: Isoquants and Isocosts

© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair

2 of 33

CHAPTER 7: The Production Process: The Behavior of Profit-Maximizing Firms

THE PRODUCTION PROCESS: THE BEHAVIOR OF PROFIT-MAXIMIZING FIRMS

FIGURE 7.1 Firm and Household Decisions

© 2007 Prentice Hall Business Publishing Principles of Economics 8e by Case and Fair

3 of 33

CHAPTER 7: The Production Process: The Behavior of Profit-Maximizing Firms

THE PRODUCTION PROCESS: THE BEHAVIOR OF PROFIT-MAXIMIZING FIRMS

Although Chapters 7 through 12 describe the behavior of perfectly competitive firms, much of what we say in these chapters also applies to firms that are not perfectly competitive. For example, when we turn to monopoly in Chapter 13, we will be describing firms that are similar to competitive firms in many ways. All firms, whether competitive or not, demand inputs, engage in production, and produce outputs. All firms have an incentive to maximize profits and thus to minimize costs.

production The process by which inputs are combined, transformed, and turned into outputs.
© 2007 Prentice Hall Business Publishing Principles of Economics 8e

You May Also Find These Documents Helpful

  • Satisfactory Essays

    WGU EGT1 Task 1

    • 746 Words
    • 3 Pages

    As you can see in the highlighted section above at 8 units produced Company A achieves profit maximization because at any point after that additional units produced causes a decline in profit. The second approach to profit maximization through total revenue and total cost is graphically. A graph is provided below to illustrate.…

    • 746 Words
    • 3 Pages
    Satisfactory Essays
  • Good Essays

    ECO 204 Week 3 DQ 1

    • 424 Words
    • 2 Pages

    A perfectly competitive industry is initially in a short-run equilibrium in which all firms are earning zero economic profits but are operating below their minimum efficient scale. Explain the long-run adjustments that will create equilibrium with firms operating at their minimum efficient scale. Why is a perfect competitive firm associated with efficiency for both consumers and businesses? Respond to at least two of your fellow students…

    • 424 Words
    • 2 Pages
    Good Essays
  • Powerful Essays

    8) Assume the price of a product sold by a purely competitive firm is $5. Given the data in the accompanying table (bottom left), at what output is the total profit highest in the short run?…

    • 3065 Words
    • 14 Pages
    Powerful Essays
  • Satisfactory Essays

    Egt1 Task 1

    • 406 Words
    • 2 Pages

    In this paper I am going to define a few common economic terms and explain their relationships to other economic terms. I will also explain how profit maximizing firms determine their optimal level of output and how a profit maximizing firm will react to different levels of marginal revenue. Marginal revenue is the extra revenue that will be made by a firm when the firm sells one additional unit of a product. Total revenue is simply the sum of a firm 's sales of a specified quantity of a particular product. So, while marginal revenue is telling how much extra money selling each additional product will make a firm, total revenue is telling how much the firm will make by selling a given quantity. Marginal cost is the what it will cost a firm to produce one more unit of product. Total cost is the total economic cost a firm incurs for producing a given quantity of a certain product. Profit is simply the a firm 's total revenue after the firm pays for its operating costs, and profit maximization is the the course of action that a firm takes to determine how much they will produce and what they will charge per unit of production in order to provide the firm with the greatest possible profit in either the long run or the short run time frame of a firm. A profit-maximizing firm determines its optimal level of out put by finding the point where marginal cost is equal to marginal revenue. Meaning that, when the cost of producing an additional, or extra, unit of product is equal to the amount of extra revenue. This point is the peak of the firm 's profit maximizing potential. An additional unit of product after this point will only result in costing the firm money, rendering marginal revenue as zero or negative. If a profit maximizing firm 's marginal revenue is greater than marginal cost, the firm will continue adding another unit of product to production as long as marginal revenue is greater than or equal to marginal cost. If a profit-maximizing firm 's…

    • 406 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Chapter 22

    • 289 Words
    • 1 Page

    The profit-maximizing rate of output for a profitable firm will usually be larger than the rate of output that minimizes average total cost because at minimum point of average total cost, profit per unit will be high. However, the least cost of production occurs at the point where the marginal cost is equal to marginal revenue.…

    • 289 Words
    • 1 Page
    Satisfactory Essays
  • Satisfactory Essays

    FPC1 preassessment scores

    • 167 Words
    • 2 Pages

    Topic: 1.12 - Looking at Perfect Competition 60.00% Competency: 3002.1.13 Understanding Monopoly Markets 3.0/5.0 points Topic: 1.13 - Understanding Monopoly Markets 80.00% Competency: 3002.1.14 Monopolistic Competition and Oligopoly 4.0/5.0 points Topic: 1.14 - Monopolistic Competition and Oligopoly 100.00% Competency: 3002.1.15 Distribution of Income 5.0/5.0 points Topic: 1.15 - Distribution of Income…

    • 167 Words
    • 2 Pages
    Satisfactory Essays
  • Satisfactory Essays

    Economic Exam Questions

    • 2348 Words
    • 11 Pages

    If the price is greater than average total cost at the profit-maximizing quantity of output in the short run, a perfectly competitive firm will:…

    • 2348 Words
    • 11 Pages
    Satisfactory Essays
  • Best Essays

    |We will examine the market structures of Monopoly, Monopolistic Competition, Oligopoly, and Perfect Competition and there subsequent pricing |…

    • 3336 Words
    • 14 Pages
    Best Essays
  • Powerful Essays

    economy management

    • 2612 Words
    • 11 Pages

    1. The industry elasticity of demand for gadgets is -2, while the elasticity of demand for an individual gadget manufacturer's product is -2. Based on the Rothschild approach to measuring market power, we conclude that…

    • 2612 Words
    • 11 Pages
    Powerful Essays
  • Good Essays

    Perfect competition is a market structure in which all firms sell an identical product, all firms are price takers, they cannot control the market price of their product, firms have a relatively small market share, buyers have complete information about the product being sold and the prices charged by each firm, and finally the there’s a free entry and exit of firms. In this essay, I will attempt to compare face to face this two market structures, monopoly versus perfect competition.…

    • 740 Words
    • 3 Pages
    Good Essays
  • Good Essays

    Prefect competition does not always exist in real markets, and more often than not, free market forces do not lead to optimum efficiency in resource allocation. One of the examples is the monopoly. Monopoly means in a market,…

    • 745 Words
    • 3 Pages
    Good Essays
  • Better Essays

    Competitive Markets

    • 895 Words
    • 4 Pages

    Generally, firms do not welcome competition. Most firms would prefer to dominate the market and become a Monopoly because they have no threat of rivals, and can alter prices and quality with ease. There is also less pressure to be efficient and innovative. This reduces the effort for the company to survive and succeed. When faced with competition, firms have to offer products that give consumers value for their money. This involves: operating efficiently by keeping costs as low as possible, providing good quality products with high levels of customer service, charging prices which are acceptable to customers, and reviewing and improving the product.…

    • 895 Words
    • 4 Pages
    Better Essays
  • Powerful Essays

    The consequences of competition for the pricing and output decisions of firms are most easily established in the model of pure competition,1 which requires that…

    • 8589 Words
    • 35 Pages
    Powerful Essays
  • Good Essays

    Economisc

    • 1231 Words
    • 5 Pages

    Perfect competition is an ideal market structure characterised by a large number of small firms, identical products sold by all firms, freedom of entry into and exit out of the industry and a perfect knowledge of prices and technology. Perfectly competitive firms are price takers they set a production level based on the price determinants in the market (Amos: 2000), meaning that price is determined by the forces of demand and supply of the industry.…

    • 1231 Words
    • 5 Pages
    Good Essays
  • Satisfactory Essays

    Open Source Software

    • 1433 Words
    • 6 Pages

    Key concepts:       Long-run versus Short-run Costs: **Revision**. The Isocost Line: 1. choosing the cost minimising input combination. 2. the impact of factor price changes. The Firm’s Expansion Path. Economies and Diseconomies of Scale. Learning-by-Doing. Economies of Scope.…

    • 1433 Words
    • 6 Pages
    Satisfactory Essays

Related Topics