Profit Maximization of Price Takers
As one of many small firms, price takers are powerless to set price. They set the max-profit output by equating price with marginal cost.
Glossary:
- profit maximizationIn the short run with fixed costs, a firm maximizes economic profit by equating marginal revenue (MR) with marginal variable cost (MC) when MC is increasing. Marginal revenue is lower than price (i.e., MR < P) if the firm must lower the price for all units just to sell one more unit.