Microeconomics · free preview
Choosing Quantity to Maximize Profit
A price taker's revenue grows linearly with output, so marginal revenue equals price, and profit peaks where that price line crosses rising marginal cost, leaving a profit rectangle measured against average cost.
1. Revenue for a taker
Revenue for a taker
2. The profit rectangle
The profit rectangle
3. Losses and the choice to stay
Losses and the choice to stay
4. Why not the profitable point on average
Why not the profitable point on average
5. The rule
A price-taking firm faces a market price of 7 dollars. At its current output of 50 units, marginal cost is 6 dollars and rising. What should it do?
6. The rectangle
At its best quantity of 80 units, a firm's price is 7 dollars and its average total cost is 4 dollars. What is its economic profit?
7. The margin on the last unit
A firm maximizes profit by producing where price equals marginal cost. Its price is 9 dollars and at the profit-maximizing output of 120 units its marginal cost is 9 dollars and its average total cost is 7.50 dollars. Compute its total profit and write the number.
8. Which way to adjust output
A price-taking firm faces a price of 7 dollars, and at its current output of 50 units its marginal cost is 6 dollars. What should it do?
9. Reading the profit rectangle
At its best quantity of 80 units, a firm's price is 7 dollars and its average total cost is 4 dollars. What is its total profit?
10. Profit at the best quantity
A firm maximizes profit where price equals marginal cost. Its price is 9 dollars, its average total cost at that output is 6 dollars, and it sells 70 units. Compute total profit in dollars, and write the number.
Practice this interactively
Free account · instant grading · spaced review that schedules itself.
Start this course for free