Cost Revenue, C(q) Profit (dollars A per year) R(q) 90 9￥ 元(q) Output (units per year) Profit Maximization in the short Run
(q) q0 q* R(q) C(q) Output (units per year) Profit Maximization in the short Run Cost Revenue, Profit (dollars per year) B A
Managers can operate in accordance with a complex set of objectives and under various constraints. However,we can assume that firms act as if they are maximizing long-run profit
Managers can operate in accordance with a complex set of objectives and under various constraints. However, we can assume that firms act as if they are maximizing long-run profit
The principle that profit is maximized when marginal revenue is equal to marginal cost holds for all firms,whether competitive or not. Profit,n=R-C,is maximized at the point at which an additional increment to output leaves profit unchanged: △π/△q=△R/△q-△C/△q=0 Thus we conclude that profit is maximized when MR-MC=0, so that MR(q)=MC(q)
The principle that profit is maximized when marginal revenue is equal to marginal cost holds for all firms, whether competitive or not. Profit, = R – C, is maximized at the point at which an additional increment to output leaves profit unchanged: /q = R/q - C/q = 0 Thus we conclude that profit is maximized when MR – MC = 0, so that MR(q)= MC(q)
$4 (a) (b)100 Q Output(bushels) Output(millions of bushels) Demand Curve Faced by a Competitive Firm
D 100 Q ﹩4 Output (millions of bushels) Output (bushels) Price (dollars per bushel) Price (dollars per bushel) Demand Curve Faced by a Competitive Firm ﹩4 d (a) (b)
A competitive firm supplies only a small portion of the total output of all the firms in an industry. Therefore the firm takes the market price of the product as given,choosing its output on the assumption that the price will be unaffected by the output choice
A competitive firm supplies only a small portion of the total output of all the firms in an industry. Therefore the firm takes the market price of the product as given, choosing its output on the assumption that the price will be unaffected by the output choice