Marginal profit

Definition

Marginal profit is the derivative of the profit function with respect to quantity. It measures the rate at which profit changes as the quantity produced changes.

5 Must Know Facts For Your Next Test

1. Marginal profit is calculated as $\frac{dP}{dq}$, where $P$ is the profit and $q$ is the quantity.
2. It indicates how much additional profit is made from producing one more unit of a good.
3. If marginal profit is positive, producing an additional unit increases overall profit; if negative, it decreases overall profit.
4. Marginal profit can be found by subtracting marginal cost from marginal revenue.
5. Understanding marginal profit helps businesses make decisions about production levels.

Review Questions

Related terms

Derivative: A measure of how a function changes as its input changes. In calculus, it represents an instantaneous rate of change.

Marginal Cost: $\frac{dC}{dq}$, where $C$ is total cost and $q$ is quantity; it measures the cost of producing one more unit.

Marginal Revenue: $\frac{dR}{dq}$, where $R$ is total revenue and $q$ is quantity; it measures the revenue gained from selling one more unit.