Profit maximization a Do firms maximize profits? o Long-run profit maximization is valid and does not exclude the possibility of altruistic behavior Chapter 8 Slide 11
Chapter 8 Slide 11 Profit Maximization ◼ Do firms maximize profits? ⚫ Long-run profit maximization is valid and does not exclude the possibility of altruistic behavior
Marginal Revenue, Marginal Cost, and Profit maximization a Determining the profit maximizing level of output ● Profit(兀)= Total Revenue- Total Cost ● Total Revenue(R)=Pq ● Total cost(C)=Cq e Therefore 丌(q)=R(q)-C(q) Chapter 8 Slide 12
Chapter 8 Slide 12 Marginal Revenue, Marginal Cost, and Profit Maximization ◼ Determining the profit maximizing level of output ⚫ Profit ( ) = Total Revenue - Total Cost ⚫ Total Revenue (R) = Pq ⚫ Total Cost (C) = Cq ⚫ Therefore: (q) = R(q) −C(q)
Profit maximization in the short run Cost Total revenue Revenue, R(q Profit (s per year) Slope of r(= MR Output (units per year) Chapter 8 Slide 13
Chapter 8 Slide 13 Profit Maximization in the Short Run 0 Cost, Revenue, Profit ($s per year) Output (units per year) R(q) Total Revenue Slope of R(q) = MR
Profit maximization in the short run c(a Cost Revenue, Profit s(per year) Total cost Slope of c(=Mc Why is cost positive when g is zero? Output (units per year) Chapter 8 Slide 14
Chapter 8 Slide 14 0 Cost, Revenue, Profit $ (per year) Output (units per year) Profit Maximization in the Short Run C(q) Total Cost Slope of C(q) = MC Why is cost positive when q is zero?
Marginal Revenue, Marginal Cost, and Profit maximization a Marginal revenue is the additional revenue from producing one more unit of output a Marginal cost is the additional cost from producing one more unit of output Chapter 8 Slide 15
Chapter 8 Slide 15 ◼ Marginal revenue is the additional revenue from producing one more unit of output. ◼ Marginal cost is the additional cost from producing one more unit of output. Marginal Revenue, Marginal Cost, and Profit Maximization