Week 4 Discussion Questions #1
Professor’s response to me: Mayola, Price is constant only in PC. So, does the MC=MR rule work in other market structures?
In order to maximize profits or minimize losses, a competitive firm will produce at the point where MC = MR. Do you agree or disagree with this statement? Explain your answer and use at least 2 examples in your response
The statement that in order to maximize profit or minimize loss, a competitive firm will produce at the point where MC = MR is a correct statement. A competitive market, price is determined by the market and each firm takes that price as given i.e. each competitive firm is price taker. Since price is fixed for a competitive firm, marginal revenue is also fixed and it will be in fact equal to the price itself. The profit maximization/loss minimization requires MC to be equal to MR and the same is done by competitive firm as well by equating price (P) with marginal cost (MC), where price represent the marginal revenue (MR) of the competitive firm as explained above. Therefore we say that in order to maximize profits or minimize losses, a competitive firm will produce at the point where MC = MR.
For example: fish market, vegetable market is almost a perfectly competitive market where each seller sell at the same price and that price is actually determined the market demand and market supply. Since the price they get is fixed, implying that their marginal revenue is fixed, so they equate price (or MR) with MC to maximize their profit/minimize their loss.
Professor’s response to me:
Can the characteristics listed above be found in any other market structures, other than the ones you mentioned?
For each of the following statements, identify the type of market it describes. Use an example from the readings or the Internet for each characteristic and explain your choice.
A. The company practices product differentiation