Question:
Evaluate the following statement:
In the short-run, information about a perfectly competitive firm's fixed costs is needed to determine both the profit-maximizing level of output and the amount of profit earned when producing that level of output.
Answer:
The profit-maximizing level of output in a perfectly competitive market is determined at the level where marginal revenue (MR) equals marginal cost (MC). Marginal revenue is the additional revenue earned by selling an additional unit of output, while marginal cost is the additional cost of producing an additional unit of output (Farnham, 2014). Additionally, in order to find the amount of profit earned, we need to know the total cost and total revenue amounts. Total cost is the total of variable and fixed cost. Therefore, in short-run production, a firm's fixed cost is needed to determine both the profit-maximizing level of output and the amount of profit earned when producing that level of output.
Farnham, P (2014) Economics for Managers 3rd edition
~Beth
I need a peer reply for this, please.