To maximize profit, a price taker will expand its output as long as the sale of additional units adds more to revenues (marginal revenues) than to costs (marginal costs).  Therefore, the profit-maximizing price taker will produce the output level at which marginal revenue (and price) equals marginal cost.

In a price-taker market, if a business produces efficiently (i.e., that is, where marginal revenues = marginal costs), the firm will be able to make at least a normal profit.  True of False.  Explain.

All firms produce where MR=MC.  Price takers produce and price where P=ATC=MC=MR.  That is the “normal profit” level.  Profits above that level are considered “economic profits.”  Review economic profits, normal profits, explicit costs, and implicit costs.

 
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