All these cost curves follow the same characteristics as the curves that we covered in the chapter on Production and Cost. The total cost curve intersects with the vertical axis at a value that shows the level of fixed costs and then slopes upward. The vertical axis shows both total revenue and total costs, measured in dollars. The horizontal axis shows the quantity of frozen raspberries produced in packs. The table in 8.3 is represented graphically in Fig 8.2 which shows the total revenue and total costs for the raspberry farm. If the market price of the product increases, then total revenue also increases whatever the quantity of output sold. If the firm sells a higher quantity of output, then total revenue will increase. The formula above shows that total revenue depends on the quantity sold and the price charged. Determining the Highest Profit by Comparing Total Revenue and Total CostĪ perfectly competitive firm can sell as large a quantity as it wishes, as long as it accepts the prevailing market price. ![]() ![]() When the perfectly competitive firm chooses what quantity to produce, then this quantity - along with the prices prevailing in the market for output and inputs - will determine the firm’s total revenue, total costs, and ultimately, level of profits. It implies that the firm faces a perfectly elastic demand curve for its product: buyers are willing to buy any number of units of output from the firm at the market price. ![]() This is already determined in the profit equation, and so the perfectly competitive firm can sell any number of units at exactly the same price. Since a perfectly competitive firm must accept the price for its output as determined by the product’s market demand and supply, it cannot choose the price it charges. = Price × Quantity – Average Total Cost × Quantity
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