are201firmpricing

are201firmpricing - Profit Maximization by the Firm...

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Profit Maximization by the Firm SITUATION 1: PRICE TAKER - firm has no control over price, and takes price as “given” – objective of firm is to sell the amount of output that will maximize its profits Way 1: Calculate profit at alternative production level; “given” price is $15 per pizza # pizzas sold revenues total cost profit 0 $0 $10,000 -$10,000 1000 $15,000 $18,000 -$3000 2000 $30,000 $24,000 $6000 3000 $45,000 $27,000 $18,000 4000 $60,000 $40,000 $20,000 Maximize profit here Another example: “Given” price is $12 per pizza # pizzas sold revenues total cost profit 0 $0 $10,000 -$10,000 1000 $12,000 $18,000 -$6000 2000 $24,000 $24,000 $0 3000 $36,000 $27,000 $9000 Maximize profit here 4000 $48,000 $40,000 $8000 Way 2: Go to the output level as long as Price is greater than Marginal Cost # pizzas sold total cost marginal cost 0 $10,000 - 1000 $18,000 ($18,000-$10,000)/1000 = $8 2000 $24,000 ($24,000-$18,000)/1000 = $6 3000 $27,000 ($27,000-$24,000)/1000 = $3 4000 $40,000
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are201firmpricing - Profit Maximization by the Firm...

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