A Price-Taker's Output Decision Based on Price vs. Marginal Cost
A price-taking firm's profit-maximizing output adjusts based on the prevailing market price. The decision rule is to produce the maximum quantity for which the marginal cost is less than or equal to the market price. This principle is central to determining the optimal production level, as illustrated by the bakery's response to a price of €2.35 in Figure 8.8.
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CORE Econ
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.8 Supply and demand: Markets with many buyers and sellers - The Economy 2.0 Microeconomics @ CORE Econ
Ch.10 Market successes and failures: The societal effects of private decisions - The Economy 2.0 Microeconomics @ CORE Econ
Learn After
Competitive Bakery's Production Choice
A small farm operates in a market where it must accept the prevailing market price of $5.00 per bushel for its wheat. The farm is currently producing 1,000 bushels, and at this output level, its marginal cost (the cost to produce one more bushel) is $4.50. To maximize its profit, what should the farm do?
A price-taking firm is producing at a level where the market price for its product is higher than its average total cost. Based on this information alone, the firm should always increase its output to maximize its profit.
Profit-Maximizing Output for a Price-Taker
A firm operates in a market where it cannot influence the price of its product. Match each scenario describing the relationship between the market price (P) and the firm's marginal cost (MC) at its current output level with the profit-maximizing action the firm should take.
A small, price-taking firm produces artisanal candles. It can sell as many candles as it makes at the prevailing market price of $12 per candle. The table below shows the firm's marginal cost (the cost to produce one additional candle) at different levels of daily output. To maximize its profit, how many candles should the firm produce each day?
Quantity of Candles Marginal Cost 1st Candle $6 2nd Candle $8 3rd Candle $10 4th Candle $12 5th Candle $14 Evaluating a Production Decision
Marginal Decision-Making for a Price-Taker
A firm operates in a competitive market and sells its product for a constant price of $50 per unit. The firm is currently producing at a level where the cost of producing one additional unit is $45. If the firm produces and sells this one additional unit, what will be the resulting change in its total profit?
Evaluating a Farmer's Production Strategy
The Marginal Cost Curve as the Price-Taking Firm's Supply Curve