Example of Profit Maximization S/Q 40 MC AC Profit 20 AR 15 MR 0 5 15 20 Chapter 10 Quantity Slide 21
Chapter 10 Slide 21 Profit AR MR MC AC Example of Profit Maximization Quantity $/Q 0 5 10 15 20 10 20 30 40 15
Example of Profit Maximization Observations S/Q AC=$15,Q=10 TC=AC xQ=150 MC Profit = TR=TC =$300 30 -$150=$1500r AC Profit=(P-AC)XQ= Profit ($30-515)(10)=$150 AR 15 10 MR 0 10 15 20 Quantity Chapter 10 Slide 22
Chapter 10 Slide 22 Example of Profit Maximization ◼ Observations ⚫ AC = $15, Q = 10, TC = AC x Q = 150 ⚫ Profit = TR = TC = $300 - $150 = $150 or ⚫ Profit = (P - AC) x Q = ($30 - $15)(10) = $150 Quantity $/Q 0 5 10 15 20 10 20 30 40 15 MC AR MR Profit AC
Monopoly aA Rule of Thumb for Pricing We want to translate the condition that marginal revenue should equal marginal cost into a rule of thumb that can be more easily applied in practice o This can be demonstrated using the following steps Chapter 10 Slide 23
Chapter 10 Slide 23 Monopoly ◼ A Rule of Thumb for Pricing ⚫ We want to translate the condition that marginal revenue should equal marginal cost into a rule of thumb that can be more easily applied in practice. ⚫ This can be demonstrated using the following steps:
A Rule of Thumb for Pricing 1.MF△R△(PQ) △Q△Q △P 2. MR=P+Q P+ PeAP △Q P八△Q 3.E P/Y△Q △P Chapter 10 Slide 24
Chapter 10 Slide 24 A Rule of Thumb for Pricing = = + = + = = P Q Q E P Q P P Q P P Q P MR P Q Q PQ Q R MR d 3. 2. ( ) 1
A Rule of Thumb for Pricing 4 △P P △O E 5.MR=P+/、1 Chapter 10 Slide 25
Chapter 10 Slide 25 A Rule of Thumb for Pricing = + = d d E MR P P Q E P P Q 1 5. 1 4