Total, average, and marginal Revenue for a Competitive firm Quantity Price Total Revenue Average Revenue Marginal Revenue (Q)(P) (TREPXQ (ARETR/Q) (MR△TR/△Q s60060 600 s600 $1200 s600 s600 2345678 6 $1800 s600 s600 s600 924.00 s600 s600 S600 s30.00 S600 S600 s600 s3600 s600 s600 s6054200 s600 s600 s600 48 s600
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 DT R/ DQ
Profit maximization for the Competitive firm The goal of a competitive firm is to maximize profit e This means that the firm will want to produce the quantity that maximizes the difference between total revenue and total cost
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
Profit maximization: A Numerical Example Price Quantity Total Revenue Total Cost Profit Marginal Revenue Marginal Cost P (TREPXQ) RTC)NMR:ATR/Q)MC△TC△Q s0.00 s3.00 -S300 s600 S600 s5.00 1.00 s600 200 s600 1200 s800 4.00 s600 S300 s600 3 1800 1200 s600 s600 94.0 s600 92400 17.00 S700 s600 S500 s605 s3000 92300 s7.00 s600 S6.00 s600 s36.00 s30050 s60s70 s60 7 s4200 s380094.06100 s800 s600 8 4800470010 S600590
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 DT R/ DQ D T C / D Q
Profit maximization for the Competitive firm. ●●● Costs The firm maximizes and profitby producing Revenue the quantity at which marginal cost equals MC marginalrevenue MC 2““……… ATC P=MR1 PEARE MR AVC MCI 0 Q ZMAX Q2 Quantity
P=MR1 P = AR = MR MC 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 Profit Maximization for the Competitive Firm
Profit maximization for the Competitive firm o Profit maximization occurs at the quantity where marginal revenue equals marginal cost When Mr>MC increase Q When Mr<Mc decrease Q When mr=Mc Profit is maximized
Profit Maximization for the Competitive Firm • Profit maximization occurs at the quantity where marginal revenue equals marginal cost. When MR > MC increase Q When MR < MC decrease Q When MR = MC Profit is maximized