1. LEVEL 3 ECONOMICS AS3.1 Understand marginal analysis and the behaviour of firms
Understanding Economics Chapt 9, P80-99
The profit maximising position for a PC and
A Monopolist
Equilibrium output taking a marginal
analysis approach
KNOW
How to illustrate the profit maximising position
for both PC and Monopoly
Decisions of firms using a marginal approach
when there are price changes
UNDERSTAND
THINKING – MANAGING SELF – PARTICIPATING AND CONTRIBUTING - RELATING TO OTHERS – USING LANGUAGE, SYMBOLS and TEXT

2. A Perfect Competitor
PRICE
COST MC
REVENUE
AC
MR
QUANTITY
Question: at the profit maximising level of output what profit will the PC make?

3. Question: at the profit maximising level of output what profit will the PC make?
A Perfect Competitor
PRICE I have placed an AC
COST MC
curve on the graph
REVENUE in a random
AC position. For this PC
MR this is their AC
curve. Remember, it
must cut the MC
curve at its
minimum point!
QUANTITY
Recall that Total Revenue = P x Q and Total Cost = AC x Q
and TOTAL PROFIT = TR minus TC

4. Question: at the profit maximising level of output what profit will the PC make?
A Perfect Competitor – SUPERNORMAL PROFIT
PRICE
COST TOTAL PROFIT = TR minus TC
MC
REVENUE
AC
MR
Qmax
QUANTITY
1. Identify the profit maximising level of output

5. Question: at the profit maximising level of output what profit will the PC make?
A Perfect Competitor
PRICE
COST TOTAL PROFIT = TR minus TC
MC
REVENUE
AC
MR
Pe
Ce
Qmax
QUANTITY
2. Identify at this level of output what the average cost is. This is the point on the AC
curve that coincides with Qmax. I have identified this as Ce.

6. Question: at the profit maximising level of output what profit will the PC make?
A Perfect Competitor
PRICE
COST TOTAL PROFIT = TR minus TC
MC
REVENUE
AC
MR
Pe
Ce
Qmax
QUANTITY
3. Identify PROFIT. TR = (Pe x Qmax) – TC = (Ce x Qmax)
In this case profit is highlighted as the shaded area and is known as SUPERNORMAL

7. Question: at the profit maximising level of output what profit will the PC make?
A Perfect Competitor – SUBNORMAL PROFIT
PRICE TOTAL PROFIT = TR minus TC
COST MC AC
REVENUE
MR
Qmax
QUANTITY
1. Identify the profit maximising level of output

8. Question: at the profit maximising level of output what profit will the PC make?
A Perfect Competitor – SUBNORMAL PROFIT
PRICE TOTAL PROFIT = TR minus TC
COST MC AC
REVENUE
Ce
MR
Pe
Qmax
QUANTITY
2. Identify at this level of output what the average cost is. This is the point on the AC
curve that coincides with Qmax. I have identified this as Ce.

9. Question: at the profit maximising level of output what profit will the PC make?
A Perfect Competitor – SUBNORMAL PROFIT
PRICE TOTAL PROFIT = TR minus TC
COST MC AC
REVENUE
Ce
MR
Pe
Qmax
QUANTITY
3. Identify PROFIT. TR = (Pe x Qmax) – TC = (Ce x Qmax)
In this case profit (actually loss) is highlighted as the shaded area and is known as SUBNORMAL

10. Question: at the profit maximising level of output what profit will the PC make?
A Perfect Competitor –NORMAL PROFIT
PRICE TOTAL PROFIT = TR minus TC
COST MC
REVENUE
AC
MR
Pe
Qmax
QUANTITY
1. Identify the profit maximising level of output

11. Question: at the profit maximising level of output what profit will the PC make?
A Perfect Competitor –NORMAL PROFIT
PRICE TOTAL PROFIT = TR minus TC
COST MC
REVENUE
AC
MR
Pe and Ce
Qmax
QUANTITY
2. Identify at this level of output what the average cost is. This is the point on the AC
curve that coincides with Qmax. I have identified this as Ce.

12. Question: at the profit maximising level of output what profit will the PC make?
A Perfect Competitor –NORMAL PROFIT
PRICE TOTAL PROFIT = TR minus TC
COST MC
REVENUE
AC
MR
Pe and Ce
Qmax
QUANTITY
3. Identify PROFIT. TR = (Pe x Qmax) – TC = (Ce x Qmax)
In this case profit is equal to zero and is known as NORMAL. Remember this is economic profit.

13. Review the top half of page 81
in your workbook. There is an
example there which should
help you.