microbook_3e-page109

microbook_3e-page109 - Profit-Maximization...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
Total Revenue and Marginal Revenue x Total Revenue – total amount that firm receives from sale of its output x Marginal Revenue – additional revenue that a firm takes in when it increases output by one additional unit. If the market demand curve is given by: D M = 10 – p and if the competitive industry equilibrium price = $8 Comp. Firm’s MR = p* p qty. dem. TR MR 8 0 0 8 8 1 8 8 8 2 16 8 8 3 24 8 8 4 32 8 8 5 40 8 8 6 48 8 8 7 56 8 Monopolist’s MR p qty. dem. TR MR 10 0 0 10 9 1 9 8 8 2 16 6 7 3 21 4 6 4 24 2 5 5 25 0 4 6 24 – 2 3 7 21 – 4 Note that: 2 Q 10Q Q Q 10 Q p TR Q 10 p p 10 Q 0 ¡ 0 ¡ { ¢ 0 ¢ 0 ¸ ¹ · ¨ © § therefore: 2Q 10 Q d TR d MR 0 { in the case of a monopoly
Background image of page 1
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Profit-Maximization Profit-maximizing level of output for all firms is the output level where firms’ MR = MC x Perfectly competitive firm’s MR = p*, so it will produce up to the point where p* = MC. x Monopolist produces up to the point where MR = MC, but this occurs at a lower output level than would occur if the industry were perfectly competitive (and monopolist sells at a price that that exceeds MR and MC) x The key idea here is that firms will produce as long as marginal revenue exceeds marginal cost. Q F p MC D F = MR Q M p MC D M MR monopolist p* MR = MC p M comp. firm Page 109...
View Full Document

This note was uploaded on 12/29/2011 for the course ECO 311 taught by Professor Willis during the Fall '10 term at SUNY Stony Brook.

Ask a homework question - tutors are online