Pursuit of Profits Increase

Question: Discuss about the Pursuit of Profits Increase. Answer: Producers in the pursuit of profits increase their output provided that revenue generated from production of an additional unit exceeds its cost similarly when cost of producing an additional unit exceeds the revenue, production ceases. In a competitive market, the supply and demand forces determine the market equilibrium. Introduction of a government subsidy lowers cost of production (Varian, 2014). Resulting in a reduction in the equilibrium price paid by the consumers and an increase in production due to increase in quantity demanded. This in effect increases both the consumer and producer surplus(Mas-Colell, Whinston, Green, 1995). However there is a loss of total welfare as the outlay of the subsidy exceeds the benefits. There is no obvious solution or policy to imperfect competition that does not distort the overall market economy. References Mas-Colell, A., Whinston, M. D., Green, J. R. (1995). Microeconomic theory (Vol. 1). Oxford university press New York. Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach: Ninth International Student Edition. WW Norton Company.