Author Question: Suppose a price searcher faces the following demand curve: At 100, 90, 80, 70, and 60, the quantity ... (Read 86 times)

washai · **on:** Jun 29, 2018

Suppose a price searcher faces the following demand curve: At 100, 90, 80, 70, and 60, the quantity demanded is 1, 2, 3, 4, and 5 units respectively. If the firm's marginal cost is 40 at any level of output, it would maximize net revenues by

A) producing 5 units and charging 60.
B) producing 4 units and charging 70.
C) producing 3 units and charging 80.
D) producing 2 units and charging 90.

Question 2

What role does the invisible hand play when two firms are producing in the same competitive industry?

What will be an ideal response?

dantucker · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

B

Answer to Question 2

When two firms are producing in the same competitive industry, the managers of both firms will be interested in maximizing individual profits. Although both firms function independently for their own objectives, the total cost of production will be minimized and the total profits across the two firms will be maximized. This happens because both firms produce where marginal cost is equal to price and eventually marginal cost across the firms is equalized. Because both firms are manufacturing at their least-cost output levels, total cost of production is minimized, and social surplus and profit are maximized.