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| Marty sells flux capacitors in a perfectly competitive market. His marginal cost is given by MC = Q. Thus, the first capacitor Marty produces has a marginal cost of $1, the second has a marginal cost of $2, and so on. a. Draw a diagram showing the marginal cost of each unit that Marty produces. b. If flux capacitors sell for $2, determine the profit-maximizing quantity for Marty to produce. c. Repeat part (b) for $3, $4, and $5. d. The supply curve for a firm traces out the quantity that firm will produce and offer for sale at various prices. Assuming that the firm chooses the quantity that maximizes its profits [you solved for these in (b) and (c)], draw another diagram showing the supply curve for Marty’s flux capacitors. e. Compare the two diagrams you have drawn. What can you say about the supply curve for a competitive firm? |
