ECON101 Lecture Notes - Lecture 20: Profit Maximization, Perfect Competition, Marginal Revenue

• School: University of Alberta
• Department: Economics
• Course: ECON101
• Professor: Gordon Lee

Document Summary

That is, an individual firm has no power to influence the market through which its product is being sold. Suppose that an individual firm sells q* at price p* However, suppose that the firm were able to sell one more unit at price p* Then, total revenue would be: r2 = p*(q* + 1) = p*q* + p* Price is not changed because a single firm in a perfectly competitive market does not have that influence. Now we know that marginal revenue would be calculated by: Mr = r2 - r1 = (p*q* + p*) - (p*q*) Mr = p* for all q in a perfect competition. We know from an earlier lecture that profit maximization occurs at the quantity where mr = mc. Thus, in a perfectly competitive market, an individual producer maximizes profits at the quantity where p=mr=mc, or where p=mc. Find the quantity where p=mc and label it q*