⏱️ November 15, 2020
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
Costs for Firm B
💸 Unit 1: Basic Economic Concepts
1.0Unit 1: Basic Economic Concepts
1.1Basic Economic Concepts: Scarcity
1.2Resource Allocation and Economic Systems
1.3Production Possibilities Curve (PPC)
📈 Unit 2: Supply and Demand
2.4Price Elasticity of Supply
2.6Market Equilibrium and Consumer and Producer Surplus
2.7Market Disequilibrium and Changes in Equilibrium
2.8The Effects of Government Intervention in Markets
⚙️ Unit 3: Production, Cost, and the Perfect Competition Model
3.6Firms' Short-Run Decisions to Produce and Long-Run Decisions to Enter or Exit a Market
📊 Unit 4: Imperfect Competition
4.1Introduction to Imperfectly Competitive Markets
💰 Unit 5: Factor Markets
5.2Changes in Factor Demand and Factor Supply
5.3Profit-Maximizing Behavior in Perfectly Competitive Factor Markets
🏛 Unit 6: Market Failure and Role of Government
6.1Socially Efficient and Inefficient Market Outcomes
6.3Public and Private Goods
6.4The Effects of Government Intervention in Different Market Structures
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