If MR is greater than MC when q = 49 then a firm in perfect competition should?
A. the firm should produce more but not raise the price B. raise the price but produce the same quantity C. produce more and raise the price D. produce less I own a factory which I could lease for $100,000 per year. Instead I use it for my own business making PlayDo figures. I earn $200,000 per year selling my PlayDo figures ... the PlayDo costs me $1,000 per year. If I were not making PlayDo figures I would be working as a bouncer at the Foothill Cafeteria making $99,000 per year (....it's a tough crowd). Considering only these expenses... My economic profits as a PlayDo artist are: A. $100,000 B. $99,000 C. $199,000 D. $0
Why does profit maximization happen on the point where marginal cost equals marginal revenue?
Think about it in simple terms: marginal cost is the cost of the next additional unit and marginal revenue is the additonal revenue gained from the next unit produced.So if the additonal revenue (marginal revenue) is greater than the additional cost (marginal cost) of production then obviously you will want to produce more (because your revenues are greater than cost so more profit!). But if additional cost (marginal cost) is greater than the additonal revenue (marginal revenue) then you would obviously not want to produce here as you will be making a marginal loss!.So if you want to maximise your total profit you would want to produce where the marginal revenue equals the marginal cost (again any less produced and you have more profit to be gained, any more and you will be losing profit).
Profit Maximizing Question - MC=MR?
Why must MC=MR to achieve the maximum profit or to have the lowest loss? Why must Marginal Cost be equal to Marginal Revenue? Won't that earn nothing?
Economics Question. What happens when MC=ATC?
MC=ATC when ATC is minimized. This point is called the break even point. The profit will be zero. When price goes up, MC=MR=P will generate profits. But when price goes down, MC=MR=P will be a loss. If the price goes down further, less than the average variable cost, the producer will shut down and go out of the market.
Why is price greater than marginal cost in a monopoly?
Monopoly means a single seller with many buyers for a commodity. Which means he/she can earn abnormal profits, i.e profits over and above normal profits. Profit maximisation level in monopoly case is determined by MR=MC but the monopolist cannot charge price=MC since the demand curve lies above MC curve (AR curve is the demand curve). Since monopolist can earn higher profits by charging a higher price why would he/she charge a lower price? In the graph below, profit maximisation quantity is at the point where MR=MC, then this quantity is matched to the demand (AR) curve which determines the price. The profit is the rectangle marked by green color.
Explain why the MR = MC rule results in profit maximization or loss minimization.?
Glad you thought out of the box ;) "Marginal Revenue Equals Marginal Cost Method This approach uses marginal analysis by comparing marginal revenue (MR) and marginal cost (MC). Marginal Cost (MC): The change in total cost as the output level changes one unit. Marginal Revenue (MR): The change in total revenue from the sale of one additional level of output. MR = (change in total revenue)/(change in output) Since each firm is a price taker, the sale of each additional unit adds to total revenue an amount equal to the price. Therefore, marginal revenue equals the price that the firm views as a horizontal demand curve. o Graphically, MR is a horizontal line equal to market price, and MC follows a J-shaped pattern. o To determine the profit-maximizing level of output, firms use the MR=MC Rule: The firm maximizes profit or minimizes loss by producing the output where marginal revenue equals marginal cost. " Also, "If total revenue and total cost figures are difficult to procure, this method may also be used. For each unit sold, marginal profit equals marginal revenue minus marginal cost. Then, if marginal revenue is greater than marginal cost, marginal profit is positive, and if marginal revenue is less than marginal cost, marginal profit is negative. When marginal revenue equals marginal cost, marginal profit is zero. Since total profit increases when marginal profit is positive and total profit decreases when marginal profit is negative, it must reach a maximum where marginal profit is zero - or where marginal cost equals marginal revenue."
Profit maximization in economics?
If revenue = cost, then yes profit will be 0 But MR = extra revenue of producing 1 extra good and MC = extra cost of producing 1 extra good So if these are equal, it just means that the cost of the last good you produced is equal to its extra revenue. It says nothing about total costs and revenue. 1) Mathematics The derivative of a minimum or maximum needs to be 0. Because in such a point, the tangent has slope = 0. So if you take the derivative of the profit function w.r.t. Q, you'll get: MR - MC The derivative of revenue (w.r.t. Q) = MR The derivative of costs (w.r.t. Q) = MC You want it to be a maximum so MR - MC must equal 0 MR - MC = 0 <=> MR = MC 2) Economical If MC < MR you can increase your profit by producing 1 extra good. Since the extra earnings (MR) are higher than the extra cost (MC). It is beneficial to produce more until MC=MR. If MC > MR you can increase your profit by producing 1 good less. Since the earnings lost (MR) are lower than the costs (MC) you save. It is beneficial to produce less until MC=MR.
(microeconomics) do you agree with this statement?
Do you agree with this reasoning? A student argues: "To maximize profit, a firm should produce the quantity where the difference between marginal revenue and marginal cost is the greatest. If it produces more than this quantity, then the profit made on each additional unit will be falling." Thanks for the help !
The firm maximizes profit when marginal revenue equal marginal cost?
If the revenue generated from producing more is greater than the cost of producing more, then there is more profit to be gained from producing more. If the revenue generated from producing more is less than the cost of producing more, then there is less profit to be gained from producing more. The same logic applies to revenue/cost and profit of producing less. The only point where there is no profit to be gained by increasing or decreasing production is when the extra revenue generated is equal to the extra cost. This is MR=MC.