Total, Average, and marginal Revenue for a Competitive Firm Quantity Price Total Revenue Average Revenue Margin ue (Q (P) (TR=PXQ (AR=TR/Q ( MREATR/△Q s600 600 s600 s600 $1200 s600 s600 2345678 600 $1800 s600 s600 600 $2400 600 600 600 3000 600 600 s600 $3600 s600 s600 600 4200 s600 s600 s600:4800600 600 Harcourt, Inc. items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Total, Average, and Marginal Revenue for a Competitive Firm Quantity (Q) Price (P) Total Revenue (TR=PxQ) Average Revenue (AR=TR/Q) Marginal Revenue (MR= ) 1 $6.00 $6.00 $6.00 2 $6.00 $12.00 $6.00 $6.00 3 $6.00 $18.00 $6.00 $6.00 4 $6.00 $24.00 $6.00 $6.00 5 $6.00 $30.00 $6.00 $6.00 6 $6.00 $36.00 $6.00 $6.00 7 $6.00 $42.00 $6.00 $6.00 8 $6.00 $48.00 $6.00 $6.00 TR/ Q
Profit maximization for the Competitive Firm The goal of a competitive firm is to maximize profit This means that the firm will want to produce the quantity that maximizes the difference between total revenue and total cost H arc Inc items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Profit Maximization for the Competitive Firm uThe goal of a competitive firm is to maximize profit. uThis means that the firm will want to produce the quantity that maximizes the dif erence between total revenue and total cost
Profit maximization A Numerical Example Price Quantity Total RevenueTotal Cost Profit Marginal Revenue Marginal Cost (Q) (TR=PXQ) (TC (TR-TC)(MREATR/AQ)MC=ATC/AQ 0 3.00 3.00 s6001 s600 s500 1.00 s600 200 s600 1200 800 s400 s300 s600 1800 1200 s600 400 600 2400 17.00 7.00 s500 s600 5 s3000 s2300 700 s600 S6. 00 600 6 s3600 s30.00 s600 700 s6007 s42.00s380400 S8. 00 s008 s400s4700100s600s900 Harcourt, Inc. items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Profit Maximization: A Numerical Example Price (P) Quantity (Q) Total Revenue (TR=PxQ) Total Cost (TC) Profit (TR-TC) Marginal Revenue (MR= ) Marginal Cost MC= 0 $0.00 $3.00 -$3.00 $6.00 1 $6.00 $5.00 $1.00 $6.00 $2.00 $6.00 2 $12.00 $8.00 $4.00 $6.00 $3.00 $6.00 3 $18.00 $12.00 $6.00 $6.00 $4.00 $6.00 4 $24.00 $17.00 $7.00 $6.00 $5.00 $6.00 5 $30.00 $23.00 $7.00 $6.00 $6.00 $6.00 6 $36.00 $30.00 $6.00 $6.00 $7.00 $6.00 7 $42.00 $38.00 $4.00 $6.00 $8.00 $6.00 8 $48.00 $47.00 $1.00 $6.00 $9.00 TR/ Q TC / Q
Harcourt, Inc. items and derived items copyright C 2001 by Harcourt, Inc Profit Maximization for the Competitive Firm CostsI The firm maximizes and profit by producing Revenue the quantity at which marginal cost equals marginal MC2 I revenue ATC PEMRI PEARE MR AVC MC1 0 Q1 MAX Quantit
P=MR1 P = AR = MR MC Profit Maximization for the Competitive Firm... 0 Quantity Costs and Revenue ATC AVC QMAX The firm maximizes profit by producing the quantity at which marginal cost equals marginal revenue. MC1 Q1 MC2 Q2 Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc
Profit maximization for the Competitive Firm Profit maximization occurs at the quantity where marginal revenue equals marginal cost. Harcourt, Inc. items and derived items copyright o 2001 by Harcourt, Inc
Harcourt, Inc. items and derived items copyright © 2001 by Harcourt, Inc. Profit Maximization for the Competitive Firm Profit maximization occurs at the quantity where marginal revenue equals marginal cost