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Notes from chapter 8 from the book

# Notes from chapter 8 from the book - revenue – marginal...

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Notes from chapter 8 from the book if the marginal profit from increasing output by one unit is positive, then output should be increased. if the marginal profit from increasing output by one unit is negative, than output should be decreased. thus, an output level can maximize total profit only if marginal profit is neither positive nor negative – that is, if it equals zero at that output. Marginal profit at any output is the slope of the total profit curve at that level of output. An output decision cannot be OPTIMAL unless the corresponding marginal profit is ZERO. Marginal Profit is the difference between the Total Profit of X1 and X2. Marginal Profit is the difference between the Total Profit of X1 and X2. Profit can be maximized only at an output level at which marginal revenue is (approximately) equal to the marginal cost. MR = MC. Marginal profit = marginal
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Unformatted text preview: revenue – marginal cost. Once the profit maximizing output quantity has been determined with the help of the MR = MC rule, it is easy to find the profit maximizing price with the help of the demand curve. just use that curve to find out what price the optimal quantity will be demanded. If a decision is to be made about the quantity of some variable, then to maximize [net benefit = total benefit – total cost], the decision maker must select a value of the variable at which [marginal benefit = (approximately) marginal cost] When a firm’s fixed cost increases, it’s profit – maximizing price and output stays the same, so long as it pays to stay in business. This is because the fixed costs just move the Profit Possibilities Curve down. Profit just goes down....
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