Profit Maximizing Output

Try It A higher price would mean that total revenue would be higher for every quantity sold.

Profit maximizing output. Marginal revenue is the change in revenue that results from a change in a change in output. Quantity Total Revenue Total Cost Total Profit Marginal Revenue and Marginal Cost. Indeed the condition that marginal revenue equal marginal cost is used to determine the profit maximizing level of output of every firm regardless of the market structure in which the firm is operating.

Note that at Q 4 the profit-maximizing condition MR MC is satisfied. It will produce this quantity right over there. In other words it must produce at a level where MC MR.

As price per unit declines so demand expands Total revenue rises but at a decreasing rate as shown by the column showing marginal revenue. Now a natural question might be how much profit will it make from producing that quantity. Marginal analysis tells us that the profit-maximizing output is where marginal revenue equals marginal cost.

The following graph shows the profit-maximizing output and price of a monopolist. Profit maximization rule also called optimal output rule specifies that a firm can maximize its economic profit by producing at an output level at which its marginal revenue is equal to its marginal cost. Since this problem is discrete the profit at Q 3 happens to be the same as the profit at Q 4 so either of these answers is correct.

Therefore profit maximisation occurs at the biggest gap between total revenue and total costs. There are several perspectives one can take on this problem. Set up your table.

A firm can maximise profits if it produces at an output. This makes more sense than maximizing profit by choosing a price directly since in some situations- such as competitive markets - firms dont have any influence over the price that they can charge. In economics profit maximization is the short run or long run process by which a firm may determine the price input and output levels that lead to the highest profit.