Marginal Revenue, Marginal Cost, and Profit maximization a Comparing R(g) and c(a) Cost ● Output levels:0-q R e, Profit (Ss per year) c(a C(q> r(g) R(q) Negative profit ◆FC+VC>R(q) B ◆MR>MC Indicates higher profit at higher output 丌(q) Output(units per year) Chapter 8 Slide 16
Chapter 8 Slide 16 ◼ Comparing R(q) and C(q) ⚫ Output levels: 0- q0 : ◆ C(q)> R(q) ⚫ Negative profit ◆ FC + VC > R(q) ◆ MR > MC ⚫ Indicates higher profit at higher output 0 Cost, Revenue, Profit ($s per year) Output (units per year) R(q) C(q) A B q0 q * (q) Marginal Revenue, Marginal Cost, and Profit Maximization
Marginal Revenue, Marginal Cost, and Profit maximization a Comparing R(g) and c(a) Cost Question: Why is profit Revenue negative when output is Profit s(per year) c/q) zero? R(g) 0/q 丌(a Output(units per year) Chapter 8 Slide 17
Chapter 8 Slide 17 ◼ Comparing R(q) and C(q) ⚫ Question: Why is profit negative when output is zero? Marginal Revenue, Marginal Cost, and Profit Maximization R(q) 0 Cost, Revenue, Profit $ (per year) Output (units per year) C(q) A B q0 q * (q)
Marginal Revenue, Marginal Cost, and Profit maximization a Comparing R(g) and c(a) Cost ● Output levels:qo-q Revenue Profit s(per year) c(a ◆R(q)>Cq) R(q) ◆MR>MC ● ndicates higher B profit at higher output ● Profit is increasing 丌(q) Output(units per year) Chapter 8 Slide 18
Chapter 8 Slide 18 ◼ Comparing R(q) and C(q) ⚫ Output levels: q0 - q * ◆ R(q)> C(q) ◆ MR > MC ⚫ Indicates higher profit at higher output ⚫ Profit is increasing R(q) 0 Cost, Revenue, Profit $ (per year) Output (units per year) C(q) A B q0 q * (q) Marginal Revenue, Marginal Cost, and Profit Maximization
Marginal Revenue, Marginal Cost, and Profit maximization a Comparing R(g) and c(a) Cost ● Output level:q Revenue Profit s(per year) c(a R(g=C(g) R(q) ◆MR=MC ◆ Profit is maximized B 丌(q) Output(units per year) Chapter 8 Slide 19
Chapter 8 Slide 19 ◼ Comparing R(q) and C(q) ⚫ Output level: q * ◆ R(q)= C(q) ◆ MR = MC ◆ Profit is maximized R(q) 0 Cost, Revenue, Profit $ (per year) Output (units per year) C(q) A B q0 q * (q) Marginal Revenue, Marginal Cost, and Profit Maximization
Marginal Revenue, Marginal Cost, and Profit maximization Question Cost Revenue Why is profit reduced Profit s(per year) c(a when producing more R(q) or less than g*? B 丌(q) Output(units per year) Chapter 8 Slide 20
Chapter 8 Slide 20 ◼ Question ⚫ Why is profit reduced when producing more or less than q*? R(q) 0 Cost, Revenue, Profit $ (per year) Output (units per year) C(q) A B q0 q * (q) Marginal Revenue, Marginal Cost, and Profit Maximization