Essay on microeconomic KT103H PERFECTLY COMPETITIVE MARKET

Can Tho University School of economics - - -   - - - Essay on Microeconomic KT103H PERFECTLY COMPETITIVE MARKET Full Name: Ton Anh Kiet Student code: B2006299 Class: 20W4F3-C6 : School year 2021-2002-Semeter Can Tho: 2021 CHAPTER I INTRODUCTION In the production of goods, profit is the highest economic goal, a cond ion for the existence and development of enterprises To provide goods and services to the market, businesses must invest capital in the production and business process They want the cost of inputs to be minimal and sell goods at the highest price ie all Every business wants to maximize profits In a perfectly competitive market, the prices of goods and services in the market are determined by the supply and demand of the entire market Each seller itself cannot control the price of the item they supply in the market Thus, under perfect competition each seller is a price taker Unable to self-regulate market prices What should a perfectly competitive firm to maximize profits? How should they adjust the amount of goods supplied to the market to ensure maximum profit for the business when the market price changes in both the short and long term? The reason that the author chooses a perfectly competitive market is given to readers because our country is a developing country, most of the businesses are participating in this market, the author wants to provide some knowledge for you to read understand more about it The author's target audience is economics students or those who are interested in economics and you want, have been, and are participating in starting a business In the scope of this discussion, we would like to present the scientific basis for enterprises to make effective supply decisions in accordance with price fluctuations in the market in the short-term and long-term production periods when they business in a perfectly competitive market CHAPTER II THEORETICAL BASIS II.1 THE BASIC CONCEPTS An enterprise is a unit that trades in goods and services according to market and social demands in order to maximize profits and achieve the highest socioeconomic efficiency A market is a mechanism in which buyers and sellers interact to determine the prices and output of goods or services A perfectly competitive market is one in which there are so many sellers and buyers that no one seller or buyer can influence the price of the market Demand reflects the quantity of a good or service that buyers are willing and able to buy at different prices in a given period, assuming all other things constant Quantity demanded is the specific quantity of a good or service that buyers are willing and able to buy at a given price in a given period (assuming other things remain constant) The demand function is an algebraic expression that represents the relationship between the quantity demanded of an item and its price Supply reflects the quantity of a good or service that sellers are willing and able to sell at different prices in a given period (assuming all other things constant) Quantity supplied is the specific amount of a good or service that sellers are willing and able to sell at a given price during a given period (assuming other things remain constant) The supply function is an algebraic expression that represents the relationship between the supply of an item and its price Supply and demand equilibrium is the state of the market where the quantity supplied equals the quantity demanded (a state in which there is no pressure to cause price or output to change) The short run is the period in which at least one factor of production cannot be changed, also known as a fixed factor The long run is the time period in which all inputs are subject to change The average product of an input is the average number of products produced by a unit of input in a given time The marginal product of an input is the change in total output when the input changes by one unit Production cost is the total cost to serve the production and business process that an enterprise has to spend and incur in a certain period of time Economic cost is the total cost of using economic resources in the production and business process in a certain period of time Short-term production costs are the costs that businesses have to incur when conducting production and business in the short term Total long-run costs include all costs incurred by a business to produce and sell goods or services if the inputs of the production process can be adjusted Long-run average cost is the average cost per unit produced in the long run The long run marginal cost is the change in total cost resulting from producing one more unit of output in the long run Profit is the difference between total revenue and total cost of production Marginal revenue is the change in total revenue when one more unit is sold II.2 CHARACTERISTICS OF A PERFECTLY COMPETITIVE MARKET - There are infinitely many independent buyers and sellers + A perfectly competitive market requires a large number of buyers and sellers, each of whom acts independently of all the others + The number of sellers and buyers is said to be multiple, when the normal transactions of one buyer or seller have no effect on the price at which the transactions are made - All units of exchange are considered to be the same This feature is practically conspicuous in the market For example, the coal market is of the same quality, or the gasoline market each unit is a copy of any other Therefore, buyers never have to care who they buy those units from - All buyers and sellers have full knowledge of the information related to the exchange A perfectly competitive market requires that all buyers and sellers have contact with all potential exchangers, knowing all the features of the items of exchange; know all the prices demanded by the seller and the price paid by the buyer People are closely related to each other and the communication between them is continuous - There is nothing to prevent entry and exit from the market The market is perfectly competitive at any given time, each person must be free to be a buyer or seller, free to enter the market, and be exchanged at the same price as prevailing exchangers Likewise, it requires that there be no obstacle preventing someone from being a buyer or a seller in the market and therefore withdrawing from the market II.3 PERFECTLY COMPETITIVE FIRM 3.1 Basic characteristics of perfect competition behavior A perfectly competitive firm can sell all of its output at the prevailing market price firms are small relative to the same market, so the firm has no appreciable effect on total output or market prices Therefore, a perfectly competitive firm has absolutely no market power, that is, the inability to control the market price for the product it sells, who must accept the market price Individually competitive firms can sell off their output at prevailing market prices This is characteristic of firms' lack of market power All competing firms have no independent influence on market prices A perfectly competitive firm's output is too small for the market capacity, so its output decisions have no appreciable effect on price A perfectly competitive firm faces a horizontal demand curve for its output DIAGRAM Figure 5.1 3.2 Output of a perfectly competitive firm It is noted that if the market has many sellers and many buyers, but there are a few sellers and a few buyers with the majority of output, the increase or decrease in its output affects the whole market market cannot be called a perfectly competitive market Figure 5.2 A perfectly competitive firm will determine output at the point where the difference between revenue and costs is greatest In the figure above, since selling price is constant with output, the revenue curve is a straight line In practice, often selling prices are fixed over time periods such as weeks, months, and years, so in the short run, the sales revenue curve of every company is a linear straight line The cost curve also follows the law of businesses in general that is the curve has an increasing slope At the origin, when no unit has been produced (q=0), there is no revenue but fixed costs (FC) At A is when revenue equals costs, called breakeven point At B is when the difference between revenue and cost is the largest, this is the point to stop At point B, marginal revenue MR equals marginal cost MC; where MR=P -> at this point MC=P That is, at the point where marginal cost equals selling price, the firm will maximize profit 3.3 The short-run supply curve of a perfectly competitive firm The firm will use the marginal condition (MR = MC) to find the level of output that maximizes profit In the short run, firms will choose the level of output at which MR = SMC, where SMC is the short-run marginal cost A special feature of perfect competition is the relationship between marginal revenue and selling price Since the demand curve is horizontal, for every additional unit a firm sells, it will receive an additional amount equal to the price of the product In a perfectly competitive market, marginal revenue equals the price of the product: MR = P (*) And to maximize profits, the firm will choose the output level at which price equals the marginal cost of output: P = SMC(*) Figure 5.3 depicts a firm's supply decision in the short run Assume the firm has a marginal cost curve SMC As we all know, this SMC curve will pass through the minimum points of the enterprise's SAC and SAVC curves They are points A and C, respectively Figure 5.3 Deciding to provide the application within the short term of the business Suppose the firm is facing a horizontal demand curve at price P4 in Figure 5.3, and the firm will choose the output Q4 corresponding to point D because at that point price equals marginal cost When the product price is at P3 or higher, that is, the price is greater than the minimum average cost, the firm will choose an output level corresponding to a certain point on the SMC curve from point C upwards, then price is greater than average cost For example, if the price is P4, the firm produces at output Q4 Then the average cost is SAC4 The firm makes a profit in the short run because then price (P4) is higher than average cost (SAC4) Similarly, corresponding to a certain price, the enterprise will rely on the SMC curve to choose the optimal output level When the price is at P3, the firm will choose the output level corresponding to the point C on the SMC curve, which is also the minimum point of the SAC curve Now that the price is equal to the minimum average cost, the firm will produce Q3 output and then the firm will break even Therefore, we also call the price P3 the breakeven price In between points A and C, the business incurs a loss because the price is below average cost However, if the price is between P1 and P2, the enterprise can partially cover the fixed costs, so the business continues to produce For example, when the price is P2, the firm will produce the output corresponding to point B on the SMC of Q2 Why is the business losing money but still not withdrawing from the industry? A business can operate and incur losses in the hope that in the future the price of the product will increase or it can reduce the cost of production so that the business can earn a profit in the future In fact, businesses can choose one of two options: continue production or temporarily close Enterprises will choose which option is more profitable If not producing, the business will suffer a loss of fixed costs If the business continues to produce, only a part of its fixed costs will be lost At that time, the price is lower than average total cost (P < SAC) but still higher than average variable cost (P > SAVC), so the enterprise can cover variable costs (VC) and part of the cost excess compared to SAVC can be used to partially offset fixed costs The firm will produce at any price higher than P1 (which is also the minimum average variable cost) because at those prices the firm will cover shortrun variable costs and which can cover fixed costs The business will stop working when the price is lower than P1 because then if it continues to produce, the business will not even cover enough variable costs and will suffer a heavier loss than if it stopped production The price P1 is called the closing price or the starting price of production At different prices, the firm will choose the output level corresponding to the points on the SMC curve at that price In other words, the points on the SMC curve indicate the amount of output that the firm will supply at certain prices Therefore, we can call the SMC curve the firm's short-run supply curve However, the firm only starts production when the price is from minimum average variable cost upwards, so the supply curve exists only above point A, where the SMC curve crosses the lowest point on the SAVC curve Let us consider an example of a shortrun supply decision of a firm operating in a perfectly competitive market to better understand the firm's decision-making process 3.4 The long-term supply of business In this section, we study the concept of long term Long-term is a time long enough for enterprises operating in the industry to change their output, production scale or leave the industry; at the same time, new firms can enter the industry Figure 5.4 shows how the firm's supply decisions in the long run are made At one point in the short run, the firm's demand curve is horizontal at the price P0 With the SAC and SMC lines as shown in Figure 5.4, the firm earns a positive profit That is the area of rectangle ABCD The firm produces output q1, sells it at P0, and has an average cost corresponding to point B on the SAC curve If the firm believes that the market price will be maintained at P0, it will want to increase the size of its factory to earn more profit At this point, the firm has the long-run average and marginal cost curves LAC and LMC We also note that the LAC curve will touch the minimum of the SAC and the LMC will pass through the minimum of the LAC The firm will choose an output level q3 corresponding to point E on the LMC curve So, when the factory expansion is completed, the profit of the business will be the DEFG area We also see that the higher the price, the higher the profit of the firm, and vice versa, if the price falls The firm will close and leave the industry if the price is below P1, which corresponds to the minimum long-run average cost (note that in the long run all costs are variable costs) The same principles as in the short run can be applied to establish the long run supply curve of a firm in perfect competition At large prices at minimum average cost (prices greater than P1), the firm makes a profit and will produce In the long run firms leave the industry when prices not cover the long-run average cost LAC Those are the prices lower than the price P1 Therefore, the firm's long-run supply curve is the part of the LMC curve to the right of point H corresponding to the price P1 At price P1, the firm produces q2 The firm then just covers the economic costs, or the firm earns a profit that is normally equal to the opportunity cost of capital and time for the business owner Figure 5.4 Long-term supply decisions of enterprises potential of enterprises to enter and exit the industry when prices change The industry's long-run supply curve is the horizontal sum of the supply curves of existing firms in the industry and those with potential for entry and exit into the industry At a price lower than P in Figure 5.6, firm B can exit the industry in the long run Conversely, when the price is higher than P2, firm B will want to enter the industry When the market price increases, the total supply of the industry increases in the long run for two reasons: (i) existing firms will produce and supply more products to the market, and (ii) new firms will feel Seeing that he could make a profit, he entered the industry, so it also increased the supply in the market Conversely, when prices fall, firms with high costs will lose money and exit the industry Industry supply will decrease significantly when prices fall Figure 5.7 Industry short-run and long-run supply curves Figure 5.7 illustrates the above argument about the industry's short-run and longrun supply curves The industry's long-run supply curve (LRSS) is flatter than the industry's short-run supply curve (SRSS) for two reasons: (i) firms can adjust their inputs appropriately so we have a more comfortable long term; and (ii) higher prices will attract firms to enter the industry, causing the industry's output to increase more than the output growth of existing firms At different price levels, there will be imports or exports that cause industry output to change more in the short run Therefore, supply in the long run is more elastic than supply in the short run 3.6.3 The industry's long-run horizontal supply curve Each firm has an upward-sloping LMC curve, so its long-run supply curve slopes upward The industry's long-run supply curve is slightly flatter than the individual 13 firm's supply curve Higher prices not only stimulate firms to produce more, but also stimulate other firms to enter the industry In special cases, the industry's longrun supply curve may be horizontal This is the case for firms with identical cost curves This is shown in Figure 5.8 Initially, the market is in equilibrium at point A in Figure 5.8b at price P1 and output Q Firms in the manufacturing industry have output q1 (figure 5.8a) Here, firms break even because the price is equal to the lowest point of the LAC curve At that time, businesses have no incentive for new businesses to enter the industry If the price is lower than P1, no firm wants to produce For some reason, the market demand increases and shifts to the right In the short run, the market is in equilibrium at point C with the higher price, P Businesses produce q2 and earn super profits Because all potential entrants have similar cost curves, there will be a massive entry of new firms Entry shifts the industry supply curve to the right to S2 The industry's long-run equilibrium will be point B Here, the price falls to exactly the level of P Enterprises only break even, so there is no incentive to enter the industry Therefore, the industry supply curve is horizontal in the long run That's the LRSS line Figure 5.8 The industry's long-run horizontal supply curve In the general case, there are two reasons why the industry's long-run supply curve is upward sloping rather than horizontal, as was the case in the last special case First, existing and potential firms are unlikely to have the same cost curve For example, some enterprises have advanced technological know-how or good management experience, etc should have a lower cost curve than other firms Second, even if all firms have the same cost curve, although each small firm cannot influence output prices as well as input prices, when firms also expand output, the demand for each firm will increase inputs and leads to an increase in 14 the prices of inputs Thus, an increase in industry output will cause input prices to rise, shifting the cost curve upwards Thus, in general, we find the industry's longrun supply curve sloping up It requires a higher price to provide a larger level of output 3.7 Some factors affecting the enterprise and industry's supply curve 3.7.1 Impact due to cost increase When the price of a product changes, the firm changes its level of output so that marginal cost equals price Usually, a change in the product's price will lead to a change in the input prices as described above Let's see how the firm's supply decision changes as input prices rise Figure 5.9 shows the response of firms to changes in input prices Assume that the firm initially has a marginal cost curve MC0 Corresponding to a product price of P0, the firm will produce output q0 to maximize profit Now, an increase in the prices of inputs, such as the price of raw materials or wages for workers in the industry, increases the cost of production The marginal cost curve shifts upward into the MC1 curve: it costs more to produce the same level of output If the price of the product remains P 0, the firm will set P0 = MC1, and then the firm will produce q less than q0 Therefore, an increase in input prices causes the production costs of enterprises to increase, the supply curve shifts to the left, firms will reduce output Figure 5.9 Firms reduce output as production costs increase 3.7.2 Shift of the market demand curve Figure 5.10 shows the effect of an upward shift in the market demand curve We consider this effect at the industry level Initially, given the demand curve DD and the supply curve of the SRSS industry, the market is in equilibrium at point A, and 15 the equilibrium price and quantity are P0 and Q0, respectively Due to changes in external factors such as increased income, changes in preferences, etc., an increase in the demand for the product causes the demand curve DD to shift rightward to DD' With the short-run supply curve SRSS, the new equilibrium will move to point A' Price rises to P1 and output increases to Q1 When demand initially increases, there is an increase in prices and an increase in industry output In the long run, firms can adjust to all factors of production and new firms enter the industry due to high prices These make the long-run supply curve flatter A new equilibrium position appears at A'' Compared to the short-run equilibrium point A', a higher equilibrium output at A'' causes the long-run equilibrium price to fall to P2 Compared to point A, the new equilibrium total output is higher, the price is higher but lower than the initial short-run equilibrium price when demand is increased Thus, increased demand leads to an increase in prices This increase has three effects on the long-run equilibrium:  An increase in price partially reduces the increase in quantity demanded  Rising prices cause businesses to expand production  Rising prices attract new businesses to enter the industry Figure 5.10 Shift of the demand curve 3.7.3 Compete in the world market In the current open economy conditions, businesses still have to deal with competition in the world market When trade barriers are negligible, the prices of domestic goods are influenced by prices in the world market At that time, the price difference between the markets is not significant For example, the price of rice in our country decreased in 1999 due to a significant increase in the supply of rice in 16 other countries The producers and consumers of the world are essentially part of a single world market as a whole The price of a commodity traded on the world market will depend on its price in another country In special cases, "Rule of one price" will appear If there were no impediments to trade and no transportation costs, then the law of one price would mean that the price of a given good would be the same around the world Without trade barriers and transportation costs, suppliers will always want to sell their products in the market with the highest price, but consumers will want to buy where the price is lowest People will sell goods in two markets simultaneously only if the prices in the markets are the same Figure 5.11 shows the supply curve S and the demand curve D in the domestic market for a good Assume there is no international trade at first, possibly due to very high tariff barriers The market will be in equilibrium at point E, with price P and output Q0 Now, tariff barriers are abolished and there is free trade Assuming this is a commodity for which domestic production has an advantage over the world, the domestic price will be lower than the market price the world field is P1w Domestic producers will want to sell their goods on the world market at a higher price The domestic supply will gradually decrease and cause the domestic price to rise When the domestic price rises to exactly P1w, there is no longer an incentive for sellers to sell abroad The price of the domestic market will be stable at the world price The domestic supplier exports an amount (Q1' - Q1), which is the domestic excess supply 17 Figure 5.11 Equilibrium domestic price and world price On the contrary, if this is a commodity in which domestic production has less of an advantage than abroad, the domestic price will be higher than the world price When there is free trade, domestic consumers will import from abroad at a cheaper price This will cause the domestic price to fall to equal the world price P 2w Then, the quantity of imported goods is equal to the domestic excess demand (Q 1' - Q1) In short, when there is free trade and insignificant transportation costs, the price of a country's goods will gradually change to reach the equilibrium price on the world market However, in reality, transportation costs between countries are considerable and tariff barriers exist, so there is a price difference between countries to ensure that suppliers cover transportation costs and revenue profit in international trade We can clearly see the change in domestic commodity prices when our country opened trade with other countries since 1989 The production of cars, electronic components, etc In our country, it is less efficient than in developed countries, so production costs are higher.The cost is higher than other countries When our country's economy is open for trade, there will be importing these goods causes domestic prices to fall Or the price of rice on the market our country's market is always associated with prices in the world market When the need to import the world rice price increases, the domestic rice price also increases and vice versa will decrease when the exports stagnated 3.7.4 policy of government Tax (special consumption tax) is an indirect tax levied on some special goods produced, traded or imported by enterprises and consumed in the country This tax is paid by the establishments that directly produce the goods, but the consumers are responsible for the tax because the tax is added to the selling price In addition, the excise tax is also known as the luxury tax The indirectness of the excise tax lies in the fact that it increases the price of a good or service, pushing the increased price burden on the final consumer to buy or use the product, i.e it is the consumer who pays the tax, not the consumer must be the unit that produces and trades it The role of excise tax is an important tool to help the State regulate production and consumption Due to the high tax rate, it will contribute directly to the consumption decision For the purpose of limiting the production and consumption of goods and services that are not beneficial to the economy and society This leads to a decrease in the demand for some goods that 18 are taxed too high due to high prices of goods and also reduces the number of firms entering the industry Subsidies (subsidies for production) are money that the government gives businesses to keep prices or reduce the selling prices of their products to consumers, thereby contributing to stabilizing people's consumption levels; businesses or industries in recession to help them stay in business In the first case, the production subsidy is a tool to redistribute income by reducing the selling prices of goods that make up a large proportion of the spending structure of lowincome families The remaining distribution is made through direct income subsidies Subsidies for production incentivize businesses to increase output of priority items However, it has the disadvantage of distorting the overall allocation of domestic resources and can negatively affect international trade Therefore, it can be seen that subsidies are also a driving force for businesses to participate in the industry In addition to taxes and subsidies, the government also has different new policies in the short term or long term depending on the period to stabilize the market 19 III PRACTICAL APPLICATION III.1 PRACTICAL APPLICATION PERFECTLY COMPETITIVE MARKET IN THE SHORT RUN In a perfectly competitive market for mooncakes, mooncake manufacturers “ Tường Nhơn” decided to produce moon cakes to serve the Mid-Autumn Festival The company intends to start production from the 5th day of the 8th lunar month with the following total cost function: TC= 2Q2 +81Q+8000000 The initial analysis firm is as follows: Total cost is: TC= 2Q2 +81Q+8000000 => The average total cost per unit is: ATC= 2Q+ 8100 + 8000000/Q Total variable cost is: TVC= 2Q2 + 8100Q => Average fixed cost is AFC= TFC/Q = 8000000/Q Total fixed cost is TFC=8000000 => Average variable cost is AVC = TVC/Q = 2Q + 8100 Marginal cost is: MC = TC' = 4Q + 8100 The company also made a comment on the selling price as follows: The firm determines the breakeven (sales price at which profit is zero) as follows: Since it is a perfectly competitive firm, it must accept a price To maximize its profit, it must sell at P = MC When the firm breaks even, it means that the firm sells at a price that equals the minimum total cost of producing the good Meaning: P = MC = ATCmin  2Q +8100 + 8000000/Q = 4Q + 8100  Q = 2000  P = MC = 4*2000 +81000 =16100 (VND) Similarly, the firm also determines the closing point (the selling price at which the firm must close.) as follows: 20 When the firm has to close, it means whether the firm is in production or not, the firm still has a fixed cost loss or more Then the price the firm sells is less than the minimum average variable cost Then: P ≤ AVCmin = MC  2Q + 8100 = 4Q +8100 Q=0  P = MC = 8100 (VND) Enterprises realize that in order to have a positive profit, the price of mooncakes must be more than VND 16,100 And this is totally doable In the first days from the 5th to 10th of the 8th lunar month, the company will sell cakes at the price of 20000 (VND) a piece To maximize profit, the firm needs to sell at a price such that P = MC 20000 = 4Q + 8100  Q = 2975 (pie) And the company produced 2975 pies for sale, and in the end it made a profit of: ∏ = Q*P - TC = 2975*20000 - (2*29752 + 8100*2975 + 8000000) = 9701250 (VND) From the 10th to the 14th of the same month, due to the demand for gears, the price of a wheel in the market was pushed up to 25,000 (VND) a piece The airline can sell it for 25,000 VND per unit To maximize profit, the firm needs to sell at an output such that: P = MC  25000 = 4Q + 8100  Q = 4225 (pie) And then the firm will have a profit of: ∏ = Q*P - TC = 4225*25000 - (2.42252 + 8100*4225 + 8000000) = 27701250 (VND) If the firm does not produce enough of this output, the firm will forfeit a portion of its profits due to the lack of output But if the firm produces more output, it will not maximize profits because of a rapid increase in average variable cost 21 When the demand to buy mooncakes was over, the market price of the cake was only 17000 (VND) a piece, the company also had to sell it for 17,000 VND a piece Also, to maximize profits, the firm must sell at an output such that: P = MC  17000 = 4Q + 8100 Q = 2225 (pie) And then the firm earns a profit of: : Q*P - TC = 17000*2225 - (2*22252 + 8100*2225 + 8000000) = 1901250 (VND) III.2 PRACTICAL APPLICATION PERFECTLY COMPETITIVE MARKET IN THE LONG RUN In a perfectly competitive market for candy manufacturer “Oshi” produces candy in the long run at a total cost of: TC = Q2 + 6400Q The initial analysis firm is as follows: LTC = Q2 + 6400Q => The long-run average cost per unit is: LAC = Q + 6400 Marginal cost is: MC = TC' = 2Q + 6400 The firm also makes the following judgment about the initial selling price The firm determines the break-even point (the selling price at which the firm has zero profit) as follows: Since it is a perfectly competitive firm, it must accept a price To maximize its profit, it must sell at P = MC When the firm breaks even, it means that it sells for exactly the same price as the minimum long-run average cost of producing the good Meaning :P = MC = LACmin 2Q + 6400 = Q + 6400  Q = P= MC = 6400 (VND) If the price of the product is more than VND 6,400, then the firm has a profit greater than 0, then it can continue to produce If the price of the product is exactly 6,400 VND, then the enterprise has two options: either continue to produce and wait for the opportunity, or give up on the industry Because at this time, the firm will always have zero profit when it has maximized its profit 22 If the price of the product is less than 6400 VND, the company will always have a loss whether it produces or not, even then the more the company sells, the bigger the loss because the cost of production is still increasing This is when the company will withdraw from the market branch The price of a pack of candy in the market is: 9000 (VND) which means that the business will have a positive profit To maximize profits, the firm will choose the output that minimizes the difference between total revenue and total costs Therefore, the profit maximization rule for a perfectly competitive firm is to choose the output such that: MC  9000 = 2Q + 6400  Q = 1300 (pack) If the firm produces less than 1300 output (MR>MC), it is still profitable for the firm Therefore, a firm that does not produce these units of output will not receive the share of profits generated by these units Similarly, if the output is more than 1300 (MR