Welcome to an example of perfect competition. In our example, there is a commodity. It is cheap
Question:
Welcome to an example of perfect competition. In our example, there is a commodity. It is cheap imitation AirPods. Many firms make them. No firm has a particularly special version of this commodity and there is a going price of $13 for all of these imitation AirPods. There are many firms, and we have our own company in this perfectly competitive market. Our company is Boston AirPods, LLC. Now, our Boston AirPods are no different or better than AirPod imitations from New York or Houston, or Toronto. No matter where they're made and who makes them the going price is $13 and we can sell as many imitation AirPods as we want at the price of $13. Now, this is our company's cost schedule. You have to take this as given. If we produce zero, our total cost of producing is zero. We have no fixed costs in this example. All of our costs are variable. If we produce one Boston AirPod, our cost is $10. If we produce two our cost is $15, three $20, four $26 and so forth, up to eight AirPods, which we can produce for a total cost of $94. That is the cost schedule. Now, a miracle is going to happen just based on that market price of $13 and this cost schedule, we are going to produce a beautiful supply and demand curve that is going to magically show us how we can maximize our profit. This is exciting. Now, this is the question indeed, we are going to ask, at a market price of $13, how much should our firm produce to maximize profits? Because we don't set the price, all we can set is the quantity produced. The question is, how many do we want to produce to maximize our profits?
| Amount produced and sold (in thousands): | |||||||||
| 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | |
| MR (price) | 35 | 35 | 35 | 35 | 35 | 35 | 35 | 35 | |
| MC | |||||||||
| Profit | |||||||||
| Cost | 20 | 30 | 40 | 50 | 65 | 87 | 120 | 165 | 215 |
| Revenue | |||||||||
