Perfectly Competitive Firm Producing Profit Maximizing Output, Incurring Losses    The firm whose cost and demand data are shown to the right is also producing the profit maximizing level of output.

   It is producing where P* = MC, which we know maximizes profit. However, even though this firm is doing the best possible, it's still incurring losses. Let's see how to show this graphically... (Actually it might be better for the firm to shut down, but for now let's suppose that isn't the case. Short run shut down is covered ahead.)

Copyright © 1995-2004, Inc. - All Rights Reserved