Firms in Competitive Markets
Why does a perfectly competitive firm maximize revenues where P=MC?
Price = Marginal Cost Curve
A competitive firms revenue is proportional to the amount of output it produces. A firm will choose a quantity of output so that the marginal cost revenue equals the marginal cost. They do this to maximize profit.
Why is P=MR in this market type?
Price = Marginal Revenue
If marginal revenue is greater than marginal cost than a firm can increase profit by increasing their production. A firms price will equal its average revenue and marginal revenue.
Name a business you think belongs in this category. Why? Be sure you think about all of the assumptions about firms in this industry.
When I think of business that belongs in this category, I think of BonFire Brewery. They are competitive to other local brewery's. I have watched their business and production grow from a small tap room to adding an additional larger tap room in the Chambers Commercial Park. They have increased their production to allow for distribution across Colorado. I feel that this local business has used their Marginal cost curve to keep their prices competitive and low, as a result of higher production of their product.
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