ECON 2023 Lecture Notes - Lecture 12: Marginal Revenue, Profit Maximization, Taipei MetroPremium
4 pages68 viewsFall 2016
SchoolUniversity of Arkansas
Course CodeECON 2023
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Profit Maximization in the Short Run
•Pure competition= price taker! can NOT max profit by raise/ lower price
•!Maximize profit by adjusting the output
oChange amount of variable resources (materials, labor)
•2 ways to determine level of output maximizing profit
o Compare Total Revenue (TR) & Total Cost (TC)
o Compare Marginal Revenue (MR) & Marginal Cost (MC)
To t a l - R e v e n u e - To t a l - C o s t A p p r o a c h
•3 questions of competitive producers
oShould we produce this product?
oIf so, in what amount?
oWhat economic profit (/ loss) will we
•Rate of increase in TC= varies w. efficiency of
oAmount of inputs
▪Current amount of capital
•Cost data reflect law of diminishing returns
•Each additional unit of input yields less output
than the previous unit
oThe point of TR=TC
▪(all cost including normal profit)
oOutput at which firm makes normal profit
but NOT economic profit
▪(TR covers all TC but NO economic
o2 break-even points!
▪When TR catch up w. TC
▪When TC goes over TR
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