Profit Maximizing Quantity

Based on its total revenue and total cost curves a perfectly competitive firm like the raspberry farm can calculate the quantity of output that will provide the highest level of profit. Marginal analysis tells us that the profit-maximizing output is where marginal revenue equals marginal cost. An assumption in classical economics is that firms seek to maximise profits.

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The profit-maximizing choice for the monopoly will be to produce at the quantity where marginal revenue is equal to marginal cost.

Profit maximizing quantity. A firm can maximise profits if it produces at an output where marginal revenue MR marginal cost MC. Substituting 2000 for q in the demand equation enables you to determine price. Thus the profit-maximizing quantity is 2000 units and the price is 40 per unit.

Profit Total Revenue TR Total Costs TC. Given a table of costs and revenues at each quantity we can either compute equations or plot the data directly on a graph. Profit is maximized at the quantity of output where marginal revenue equals marginal cost.

The Firms Profit Maximizing Quantity In the previous section we concluded that a firm maximizes its profits where marginal revenue equals marginal cost. Quantity Total Revenue Total Cost Total Profit Marginal Revenue and Marginal Cost. Set up your table.

The profit-maximizing output is the one at which this difference reaches its maximum. That is MR MC. So a rational firm thats trying to maximize its profit will produce the quantity where marginal cost intersects marginal revenue.

In the example above we can see directly that profit is maximized at a quantity of 3 but we can also see that this is the quantity where marginal revenue and marginal cost are equal at 2. Calculating the quantity that will maximize profits requires that you understand the economic concept of marginal analysis. Well no rational person if they want to maximize their profit would do that.

Now a natural question might be how much profit will it make from producing that quantity. Click to see full answer. In the jargon of economists profit maximization occurs when marginal cost is equal to marginal revenue.