Why would you pick the choice that gives you $0 profit in a perfectly competitive market?

Question

Taking an exam for this in an hour...just confused as to why you would pick 2400 in this case because it gives you $0. I know in a monopoly you'd pick the thing that makes the highest profit...but why would you pick something with no return?

Quantity Price Profit
0 36 0
200 33 6,600
...
1000 21 21,000
1200 18 21,600
1400 15 21,000
...
2200 3 6,600
2400 0 0

Perfect competition - you pick 2400. Why?

Good to know my Econ professor is retarded...he said it was profit...and he didn't mention some of that stuff...

yay...

Answer 1

I think you are confusing two different issues. A perfectly competitve firm takes the price from the market as given and produces the quantity where marginal cost equals price. The chart you have given cannot be a perfectly competitive firm, because the market price would not change as the firm's output changes. In addition, quantity x price is revenue, not profit.

A perfectly competitve firm earns zero economic profit in the long run. Is that what you are thinking of? You would still operate at zero economic profit because economic profit includes opportunity cost. For example, if you have an accounting profit of $50,000, and the next best use of your resources would also have earned you $50,000, your economic profit is zero, but you are still "making money."

Answer 2

A little too late, but the reason is you're talking about economic cost, not accounting cost.

Economic cost includes the next best thing you could be doing.
For example, if you could be working for a paycheck instead of working in your business, you add that cost in your costs. If you could rent your owned warehouse out for 30 dollars a day, you include that in the cost of your operation.

So when you equal out to make 0 economic profit, you still make as much as you could have made without being in the business.

It is referred to as opportunity cost and is a central feature of microeconomics.

It also means that price will drop until you're better off exiting the market and doing that other option. And its a good way to reassign those who could make more doing something else.

Answer 3

in a perfect competition, all the buinesses functions with perfect knowledge of each other- prices included. You cannot get away with making profit OVER that of your competitors without them first knowing about the change in price. So if they peg their price lets say 5 bucks, you got to follow at 5 bucks even though that is making you 0 in profit, because if you go lower they will follow suit, you cannot undercut them. Neither can you raise your prices even by a cent, because in a PC market the consumers will not buy your goods. ;)

Answer 4

zero sum means you are not loosing money either, it is the desired position for a new business or a business entering a new market. don't forget zero profit means all your staff and yourself are getting paid. theoretically you could stay at 0 forever

Answer 5

The question isn't talking about marginal return, is it?

Answer 6

i don't know.........