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๐Ÿ’ตย ap micro

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โš™๏ธย Unit 3

ย ย โ€ขย ย โฑ๏ธ1 min read

3.5 Profit Maximization

jeanne stansak

Caroline Koffke

caroline koffke

(editor)

โฑ๏ธ November 15, 2020

๐Ÿ“…

MR = MC

In economics, we refer to the profit-maximizing point as the quantity where marginal revenue (MR) equals marginal cost (MC). When we produce at this quantity, the costs of producing the last unit of output equals the revenue gained when selling it.

In the tables below, you can see that at 3 units, MR = MC ($7 = $7). This would be considered the profit maximization point for this firm. The firm will not produce a quantity lower than 3 because they would be producing a quantity where MR > MC, which means that the firm has the potential to earn more revenue per unit and is not maximizing its profits. They would also not produce above the quantity of 3 because if they did they would be producing at a point where MC > MR, which means the additional cost of producing each additional unit is more than the revenue it earns for the firm, incurring a loss.

Revenue for Firm B

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Costs for Firm B

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๐Ÿ’ธย  Unit 1: Basic Economic Concepts

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