Profit maximization

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Economics Report

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  • 1. Group 6: III-ACSAD Reported By: Arias, Kristine De Jesus, Relly
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  • 3. Total Cost The cost of all factors of production. Total Revenue The total amount of money that the firm receives from sales of its product or other sources.
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  • 8. A monopolist maximizes profit by choosing a quantity where marginal revenue equals marginal cost A process that companies undergo to determine the best output and price levels in order to maximize its return.
    • Total Revenue – Total cost Method
    • Marginal Revenue – Marginal Cost Method
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  • 10. (This is complicated but very useful to compare profit maximization under different market condition) Stage1: To find profit maximizing output, we use MC & MR curves. To maximize profit Marginal Revenue must be equal to Marginal Cost. i.e. MR=MC Why profit maximize when MR=MC? To find out the answer to this question, observe when MR=/= (not equal to) MC. MC MR 1 3 2 5 3 10 4
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    • PROFIT = TR-TC
    • Total Revenue (TR): This is the total income a firm receives.
    • Total cost : refers to the total expense incurred in reaching a particular level of output; if such total cost is divided by the quantity produced, average or unit cost is obtained.
    • MARGINAL REVENUE:IS THE CHANGE IN REVENUE WHICH COMES FROM SELLING AN ADDITIONAL UNIT OF OUTPUT.
    • MARGINAL COST:IS THE CHANGE IN COST WHICH COMES FROM PRODUCING AN ADDITIONAL UNIT OF OUTPUT.
  • 12.
    • AC AND AR ARE THE AVERAGE COST AND REVENUE COST CURVES.
    • MC IS THE MARGINAL COST AND MARGINAL REVENUE.
    • WHEN OUTPUT REACHES OM,MARGINAL REVENUE EQUALS MARGINAL COST AT E.
    • HENCE PQRS IS THE PROFIT.
    • BEYOND OM OUTPUT ,THE MC CURVE IS HIGHER THAN MR CURVE WHICH INDICATES LOSSES.
    • THUS PROFITS ARE MAXIMUM WHEN MR=MC.
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