> For a price searcher, he already makes an economic > profit, reducing output can only drive up prices, > it could generate increased revenues even at lower > levels of output. BUT YOU ARE SAYING THEY DO NOT INCREASE OUTPUT B/C THEY WANT TO STAY EFFICIENT??? RIGHT?
no, because that’s how they would maximize profit. Efficiency is at MR=MC(=P for price taker)
well done. map1 Wrote: ------------------------------------------------------- > For a price taker, increasing output increases > expenses. For the same zero economic profit, here > you go with a lot more trouble (inventory, labor, > rent, you name it, you need it to increase > output). > > For a price searcher, he already makes an economic > profit, reducing output can only drive up prices, > it could generate increased revenues even at lower > levels of output. Remember that at previous lower > outputs, the marginal revenue was larger. > > Both would become efficient when MR=MC, but that’s > not maximizing profits for either one of them.
This is not a very good question, and I think the answer is A, although initially I thought it was D. 1) There is no indication that MR=MC because a profit-maximizing firm is simply one that has profit maximization in mind, it could be making big losses right now, but it is still a profit-maximizing firm. 2) It says in the problem that MR > MC, so you can’t say MR=MC anyway. 3) Whenever MR > MC, any firm (even a monopolist) would produce more (look at a typical MC curve and see that whenever MR > MC, maximum Q is not yet attained, you need to produce more). That’s what I think.
EVERY type of firm that maximizes profits will produce where MR=MC!
> EVERY type of firm that maximizes profits will produce where MR=MC! Exactly, and here this firm hasn’t reached that level where MR=MC, it is still to the left on the output axis. Look at the graph.
I remember this is a CFA institute problem, not from any third-party companies. Otherwise I would simply believe either (A) or © is the right answer. I prefer ©
I go with A. For either price taker or price searcher, profit max point is MC=MR. The only difference between the two is: MD=MR=P for price taker, while MD is unequal to MR for price searcher.
Can we go back to the fact that the question poster has indicated the answer is B, which NO ONE has agreed with. Shuzhen, are you sure on what you’ve posted?!
A MR>MC, increasing output leads to higher profit price taker = horizontal demand curve price searcher = downward sloping demand curve in both case, the firm still has to increase output until MR=MC
A Let’s look at the basic concept of MR and MC. MC, is the increase in total cost for one additional unit of output. for example, it costs $5 to produce one more DVD for a firm. MR, is the addition to total revenue from selling one more unit of output. for example, it brings $10 when one more DVD sold for a firm. the profit is $10-5=$5 no matter how small or large the firm is, how the whole industry competition is, the firm will produce more to earn more profit. this is common sense from daily life. some times, common sense is better for me make decision on tough Qs. no matter who created the Q, every one may make mistake. and I believe CFAi made the much more than other 3rd party companies.
MUST be A!!!