marginal revenue= marginal cost approach
for most production situations, at a low level of output
MR is greater than MC, indicating that increasing production will add more to revenue than it adds to cost, so there will be additional profit associated with increasing production
law of supply
predicts that firms will produce more output in reaction to an increase in product price
market demand increases
shown by a rightward shift of Dmkt to D1. this increase in market demand leads to a higher market price, P1
marginal revenue (MR)
the addition to revenue from the sale of one more unit of output indicates how much total revenue changes when an additional unit of output is sold and is the change in total revenue divided by the change in output
TR-TC approach to maximize profit
the firm should supply the level of output (quantity) where total revenue exceeds total cost by the greatest amount
MR=MC approach
the most common method, because it looks at changes to revenue and cost on a per unit basis, and most pricing and selling is done on a per unit basis
diminish profit
where MC is greater than MR, would be to pay more to produce the extra unit of output than the extra unit of output is worth, given the market valuation of the product this would _______
a change in market supply or market demand will change market price
which will change price and marginal revenue for the firm
the profit-maximizing rule applies to firms in any market structure, including monopoly , but for perfectly competitive firms, the profit-maximizing rule
(producing where MR = MC) is equivalent to producing where P= MC, since P=MR when the firm is a price-taker
ideally, to make profits as large as possible in the short run
(that is, to maximize profits), a firm produces the quantity of output (Q) where MR=MC, given that MC increases as output increases
each additional unit of output sold
adds the market price to the firm's revenue, so for an individual firm in perfect competition, P=MR
a profit maximizing firm will continue to increase production
as long as MR is greater than MC, or as long as profit increases when output increases, but will stop at the point where MR=MC
TR-TC approach, MR=MC approach
both approaches will always yield the same outcome when using the same set of data.
a firm selling in a perfectly competitive market
can sell all it desires at the current market price
decrease the firm's profit
if producing and selling another unit of output adds more to the firm's cost than it does to the firm's revenue, then producing and selling that additional unit will ____________
increase the firm's profit
if producing and selling another unit of output adds more to the firm's revenue (benefit) then it does to the firm's cost, then producing and selling another unit of output will ____________
the higher price results
in an increase in the MR for the firm, and MR=MC at point B. the new profit- maximizing level of output is q1`
marginal cost
is the addition to the firm's total cost when one more unit of output is produced. is the change in total cost divided by the change in output or the change in total variable cost divided by the change in output
the marginal benefit to the seller
is the additional revenue received from the sale of another unit of output
