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The optimal output, shown in the graph as , is the level of output at which marginal cost equals marginal revenue. The price that induces that quantity of output is the height of the demand curve at that quantity (denoted ).
Productive efficiency: no additional output of one good can be obtained without decreasing the output of another good, and production proceeds at the lowest possible average total cost. These definitions are not equivalent: a market or other economic system may be allocatively but not productively efficient, or productively but not allocatively ...
These functions describe each firm's optimal (profit-maximizing) quantity of output given the price firms face in the market, , the marginal cost, , and output quantity of rival firms. The functions can be thought of as describing a firm's "Best Response" to the other firm's level of output.
Firm 1's reaction function q1=R1(q2) gives its optimal output q1 to a given output q2 of firm 2. Likewise, firm 2's reaction function q2=R2(q1). The Cournot-Nash equilibrium occurs where the two reaction functions intersect and both firms are choosing the optimal output given the output of the other firm.
Optimal production This economy must be on the boundary of its own production possibilities. At this time, for any two producers who produce different products, the marginal technology substitution rate of the two production factors that need to be input is the same, and the output of the two consumers is maximized at the same time.
In economics, a production function gives the technological relation between quantities of physical inputs and quantities of output of goods. The production function is one of the key concepts of mainstream neoclassical theories, used to define marginal product and to distinguish allocative efficiency, a key focus of economics. One important ...
Capacity utilization or capacity utilisation is the extent to which a firm or nation employs its installed productive capacity (maximum output of a firm or nation). It is the relationship between output that is produced with the installed equipment, and the potential output which could be produced with it, if capacity was fully used. [1]
Consequently, the societally optimal firm size is OQ 2, where long-run average cost is at its lowest level. The socially optimal firm size is the size for a company in a given industry at a given time which results in the lowest production costs per unit of output.