Answer to Question #134890 in Microeconomics for SANDRA

Question

More generally, why would sellers who are interested in maximizing their profits ever decide to lower the price of the goods they are selling? Assume that each unit the firm sells costs the same to produce no matter how many units of the good it sells.

Answer 1

Sellers lower the price of goods up to a point where marginal revenue is equal to the marginal cost, thereby projects the quantity to producing basing on the market demand curve to assist in determining the market price that can correspond to that quantity. Therefore, the economic profit should always be equal to the average revenue minus the average total cost then multiplied by the number of units produced. Therefore, the more the number of units produced despite lowering the price, the higher the profit made.