What do a firms Marginal Revenue (MR) and Demand curves look like in perfect competition? Draw them
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Question:
- What do a firm’s Marginal Revenue (MR) and Demand curves look like in perfect competition? Draw them in a Quantity-Price/MR diagram (don’t forget to label the axes).
- Why do the MR and Demand curves look the way you draw? Briefly explain.
- Now add a Marginal Cost curve (MC) to the diagram you drew above. How is the profit-maximizing output in perfect competition determined? Mark this output as q* in the diagram.
- What is the price a firm in perfect competition will charge for its product? Is this price related to the output level of this particular firm? Why or why not?
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