Authors libby rittenberg 482

output, Mr Gortari’s total cost is $400 (his total fixed cost); total revenue is zero Total cost continues to exceed total revenue up to an output of 1,500 pounds per month, at which point the two curves intersect At this point, economic profit equals zero As Mr Gortari expands output above 1,500 pounds per month, total revenue becomes greater than total cost We see that at a quantity of 1,500 pounds per month, the total revenue curve is steeper than the total cost curve Because revenues are rising faster than costs, profits rise with increased output As long as the total revenue curve is steeper than the total cost curve, profit increases as the firm increases its output The total revenue curve’s slope does not change as the firm increases its output But the total cost curve becomes steeper and steeper as diminishing marginal returns set in Eventually, the total cost and total revenue curves will have the same slope That happens in Figure 9.6 "Total Revenue, Total Cost, and Economic Profit" at an output of 6,700 pounds of radishes per month Notice that a line drawn tangent to the total cost curve at that quantity has the same slope as the total revenue curve As output increases beyond 6,700 pounds, the total cost curve continues to become steeper It becomes steeper than the total revenue curve, and profits fall as costs rise faster than revenues At an output slightly above 8,000 pounds per month, the total revenue and cost curves intersect again, and economic profit equals zero Mr Gortari achieves the greatest profit possible by producing 6,700 pounds of radishes per month, the quantity at which the total cost and total revenue curves have the same slope More generally, we can conclude that a perfectly competitive firm maximizes economic profit at the output level at which the total revenue curve and the total cost curve have the same slope Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 482