Profit maximization

Profit decision is calculated by

Average condition

profit maximization

Determining the level of output a firm should produce to make profit as large as possible

Profit maximization based on mr and cost approach Graph control over the price and no control over price

Control- MR is slanting and going to the negative side No control- it is horizontally straight

How is TR drawn on a graph for control over price and no control

Control- curved first increase then at a certain point decrease No control-straight

What does it mean when MR>MC

The revenue for the additional unit is more then the cost of the additional unit hence it should produce more

What is profit maximization based on

Total revenue and cost approach Marginal revenue and cost approach

Profit max graph with AC and AR

AR is horizontally straight and AC is curved U shaped

Short run production decision

In the short run it will produce where is either greater or equal to average variable cost

Curve for long run production decision curve

Includes MC ATC AVC first draw the MC then on the MC AVC curve is below the ATC there should be 5 points on the MC to explain 1 point on the MC but above ATC -abnormal profit 2 point on the MC where MC and ATC meet normal profit 3point on MC but below ATC but above AVC-firm makes a loss but continues to produce 4 point on MC where MC meets AVC-firm is indifferent to producing at a loss or not producing 5point on MC below the AVC firm makes losses and shuts down

Output decision is calculated by

Marginal condition

Long run production decision

Will produce only if the revenue is greater or equal to the average cost