The Profit-Maximizing Choice for a Price-Taking Bakery with Discontinuous Marginal Cost
For a price-taking bakery facing a market price of €2.35, the profit-maximizing decision is to produce 120 loaves. This conclusion is reached by applying the principle of producing as long as the marginal cost is less than or equal to the market price. In this case, the marginal cost is €1.50 for up to 120 loaves, which is below the price. However, at the 120-unit mark, the marginal cost becomes discontinuous, jumping to €2.60. The rule 'price equals marginal cost' is met in this scenario because the market price of €2.35 lies between the marginal cost before the jump (€1.50) and after the jump (€2.60). Therefore, the firm produces up to the point of the cost discontinuity.
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Ch.8 Supply and demand: Markets with many buyers and sellers - The Economy 2.0 Microeconomics @ CORE Econ
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