At any given quantity, total revenue minus total cost will equal profit. Table 8.1 Total Cost and Total Revenue at the Raspberry Farmīased on its total revenue and total cost curves, a perfectly competitive firm, like the raspberry farm, can calculate the quantity of output that will provide the highest level of profit. All these cost curves follow the same characteristics as the curves covered in the Cost and Industry Structure chapter. The total cost curve intersects with the vertical axis at a value that shows the level of fixed costs, and then slopes upward. The horizontal axis shows the quantity of frozen raspberries produced in packs the vertical axis shows both total revenue and total costs, measured in dollars. Total revenue and total costs for the raspberry farm, broken down into fixed and variable costs, are shown in Table 8.1 and also appear in Figure 8.2. If, for example, the price of frozen raspberries doubles to $8 per pack, then sales of one pack of raspberries will be $8, two packs will be $16, three packs will be $24, and so on. Sales of one pack of raspberries will bring in $4, two packs will be $8, three packs will be $12, and so on. ![]() As an example of how a perfectly competitive firm decides what quantity to produce, consider the case of a small farmer who produces raspberries and sells them frozen for $4 per pack. ![]() If the price of the product increases for every unit sold, then total revenue also increases. If you increase the number of units sold at a given price, then total revenue will increase. Total revenue is going to increase as the firm sells more, depending on the price of the product and the number of units sold. 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.
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