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Managing in a Competitive
Environment
College of Education
School of Continuing and Distance Education
2014/2015 – 2016/2017
Session Overview
• Having obtained a firm understanding of the different
components of profit, which is revenue and cost, we are now
ready to select the price and the output that the firm needs to
maximize profit. Having done that, we will calculate the extent
of profit a firm makes. Because firms belong to different
markets which may have different structures, we look at the
different markets separately. In this session, we examine the
profit conditions in a competitive market.
I t " JJ +r '1
Pt<rtt<•'t ,· rrr ....t rt r rr Short-Run
Price Price
P, P, t - - - - - - - - D=AR=MR
o·L------------------ O·
L--------------------
o, Output ( 0 ) Output (Q )
Uar1<.et
Demand
Q1 Output(Q) Q2 Output(Q)
TC = 1000+ 2Q+0.01Q2.
The firm operates in a perfectly competitive industry
and sells its product at the market-determined price of
$10. To maximize total profits, what should be the
firm’s monthly output level, and how much economic
profit will the firm earn each month?