Profit maximization
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This document discusses profit maximization for businesses. It defines profit as revenue minus costs. A business maximizes profit by producing at the quantity where marginal revenue equals marginal cost. This is achieved through analyzing total revenue and total cost curves as well as marginal revenue and marginal cost curves. The marginal revenue and marginal cost method is described as the process companies use to determine the optimal output and price levels to maximize their return.
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Profit maximization
A firm maximizes profit by producing at the quantity where marginal revenue equals marginal cost. This occurs because:
1) Marginal revenue is the change in total revenue from selling one more unit, while marginal cost is the change in total cost from producing one more unit.
2) When marginal revenue exceeds marginal cost, the firm can increase profits by producing more units. But when marginal cost exceeds marginal revenue, profits decrease with additional production.
3) Therefore, profit is maximized at the quantity where the two margins are equal, as additional production beyond this point leads to losses rather than gains.
Profit Maximization
The document discusses the concept of profit maximization for firms. It states that firms aim to maximize profits by producing at the quantity where marginal revenue equals marginal cost. Marginal revenue is the change in total revenue from selling one more unit, while marginal cost is the change in total cost from producing one more unit. The profit-maximizing level of output occurs when marginal revenue and marginal cost are equal, as this is where profits are highest.
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The document discusses different theories of cost, including traditional and modern theories. Under traditional theory, costs are categorized as total, average, and marginal in both the short-run and long-run. Total cost equals total fixed cost plus total variable cost. Average cost depends on average fixed and average variable cost. Marginal cost is the change in total cost from producing one additional unit. In the long-run, all costs are variable. Modern theory proposes cost curves are L-shaped rather than U-shaped as traditionally thought.
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- A perfect competition market is one where many small producers sell identical products, meaning buyers have many alternatives and no single seller can influence the market price.
- Main features include homogeneous products, many buyers and sellers, perfect information and mobility of factors of production. Agricultural markets are often used as examples.
- In the short run, firms aim to maximize profits by producing where marginal revenue equals marginal cost. In the long run, firms will exit if earning losses or normal profits and entry will occur if profits are above normal.
- The market equilibrium price is determined by the intersection of total industry demand and supply. Individual
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Profit maximization
A firm maximizes profit by producing at the quantity where marginal revenue equals marginal cost. This occurs because:
1) Marginal revenue is the change in total revenue from selling one more unit, while marginal cost is the change in total cost from producing one more unit.
2) When marginal revenue exceeds marginal cost, the firm can increase profits by producing more units. But when marginal cost exceeds marginal revenue, profits decrease with additional production.
3) Therefore, profit is maximized at the quantity where the two margins are equal, as additional production beyond this point leads to losses rather than gains.
Profit Maximization
The document discusses the concept of profit maximization for firms. It states that firms aim to maximize profits by producing at the quantity where marginal revenue equals marginal cost. Marginal revenue is the change in total revenue from selling one more unit, while marginal cost is the change in total cost from producing one more unit. The profit-maximizing level of output occurs when marginal revenue and marginal cost are equal, as this is where profits are highest.
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- A monopoly market is characterized by a single seller of a unique product without close substitutes. Barriers to entry like government protections, large economies of scale, or exclusive ownership of resources allow monopolies to exist.
- A monopoly is both the firm and the industry and is the price maker. It faces a downward sloping demand curve where price exceeds marginal revenue. The profit-maximizing quantity is where marginal revenue equals marginal cost.
- At this quantity, the monopoly sets the highest price that demand allows. If price exceeds average total cost, the monopoly earns economic profits. In the long run, only monopolies that earn super-normal profits can remain in business.
Costs functions
Okay, let's solve this step-by-step:
Given: TC = 4000 + 5Q + 10Q2
Quantity (Q) = 10 units
1) Total Fixed Cost (TFC) = 4000 (Given fixed cost)
2) Average Fixed Cost (AFC) = TFC/Q
= 4000/10 = 400
3) Total Variable Cost (TVC) = 5Q + 10Q2
= 5(10) + 10(10)2 = 50 + 1000 = 1050
4) Average Variable Cost (AVC) = TVC/Q
= 1050/10 = 105
5) Average Total Cost (ATC) = TC/Q
Revenues and revenue curves
this is first attempt to share my slides on online media. Please suggests me how can i improve my presentation.
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Okay, let's solve this step-by-step:
Given: TC = 4000 + 5Q + 10Q2
Quantity (Q) = 10 units
1) Total Fixed Cost (TFC) = 4000 (Given fixed cost)
2) Average Fixed Cost (AFC) = TFC/Q
= 4000/10 = 400
3) Total Variable Cost (TVC) = 5Q + 10Q2
= 5(10) + 10(10)2 = 50 + 1000 = 1050
4) Average Variable Cost (AVC) = TVC/Q
= 1050/10 = 105
5) Average Total Cost (ATC) = TC/Q
Revenues and revenue curves
this is first attempt to share my slides on online media. Please suggests me how can i improve my presentation.
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The document discusses the concept of cost and various types of costs from the perspective of the theory of cost. It defines cost and explains opportunity cost versus actual cost. It then outlines 10 main types of costs including direct vs indirect costs, fixed vs variable costs, sunk vs incremental costs, and historical vs replacement costs. The document also discusses cost functions and how factors like output, scale, input prices, and technology influence the cost-output relationship in the short-run. Graphs and examples are provided to illustrate short-run total, average and marginal costs.
Baumol’s theory of sales maximisation
Baumol's theory of sales maximization argues that managers prioritize increasing sales over maximizing profits for several reasons. According to the theory, managers prefer steady sales growth to maximize revenue (R) up to the quantity (Qs) where marginal revenue (MR) is zero, rather than the higher quantity (Qm) that would maximize profits. This ensures a minimum acceptable level of profits (Rs) to satisfy shareholders while allowing continued sales growth. However, the theory makes some simplifying assumptions and has been criticized for not fully considering factors like oligopoly interdependence and uncertainties that could impact firms' objectives.
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- Profits are calculated as total revenue from sales minus the costs of resources used. Firms will produce as long as marginal cost is less than marginal revenue.
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3. A firm's production function shows the relationship between inputs like labor and capital, and total output. It exhibits diminishing marginal returns as more inputs are added.
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Fundamentals of EconomicsA. Profit MaximizationProfit Maximi.docx
Fundamentals of Economics
A. Profit Maximization
Profit Maximization is the determination of the best output in relation to price levels so that returns for the firm are maximized. A company usually has profit goals that must be reach, so various strategies such as reducing production costs, adjusting sale prices, and maximizing output levels are used.
A company should always use profit maximization methods, but these methods may negatively affect consumers if the method results in poor-quality product or higher prices.
Two main methods are use in profit maximization: a) Total Cost-Total Revenue Method and b) Marginal Cost-Marginal Revenue Method.
a) Total revenue to total cost
Total revenue less total cost is the profit, expressed as Π = TR – TC. Total revenue is the total amount of money the company receives from selling its products, or from other aspects of its business operations. Total cost is the sum of all aspects of the company’s production and operations, including non-monetary costs. Non-monetary costs include items that were not paid in cash but were incurred, like the time spent by the owner managing the business, or the equivalent cost of using the land or machineries of the owners, as if they are being rented.
If non-monetary costs will not be included in the computation of revenue, an accounting profit will result, but it will not be the actual economic profit. To obtain the economic profit, all explicit and implicit costs should be accounted for, including opportunity costs.
To find out how much profit the firm actually make, costs have to be determined. All the information can be derived from ATC. As ATC = TC/Q, so TC = ATC x Q. Profit maximization levels can be found by the simple multiplication and subtraction approach. Profit maximization = Total Revenue (TR) – Costs (C). (NEWLY ADDED)
Criterion Score:2.00
Comments on this criterion (optional): The submission explains Total Revenue and Total Cost.
However, the point at which profit maximization is reached and how it is recognized using total
revenue and total cost as criteria could not be located in the submission. Please revise and
resubmit.
b) Marginal revenue to marginal cost
Marginal revenue is the added revenue when one more unit of output is sold. The profit maximizing level of output for monopolists is arrived at after equating its marginal revenue and its marginal cost. This is also the same condition for profit maximization that a perfectly competitive firm uses in determining its output equilibrium level. Marginal revenue equals marginal cost is the condition firms in different market structures use in determining their profit maximizing level of output.
Marginal cost is the cost of the additional unit, or the cost of produce one more unit. It is hard to determine the exact cost of the last unit, but the average cost of a group of units can easily be calculated. The change in costs from a previous level is divided by the change in quantity fr.
Ppt ch05 perfect competition 33
The document discusses market structures and perfect competition. It describes the key features of perfect competition as having many small businesses, standardized products, free entry and exit, and firms that are price takers. Under perfect competition, firms maximize profits by producing at the quantity where marginal revenue equals marginal cost. In the long run, perfectly competitive markets achieve equilibrium when price equals minimum average cost and all firms earn zero economic profits. The benefits of perfect competition are that it results in minimum-cost pricing and marginal-cost pricing, which benefits consumers.
Profit maximisation & its alternatives
The document discusses profit maximization and different approaches companies take to maximize profit. It provides two approaches to profit maximization in the short run using total revenue and total cost curves, and marginal revenue and marginal cost curves. Profit is maximized where marginal revenue equals marginal cost. The document also discusses factors that can prevent companies from strictly pursuing profit maximization and alternative objectives companies may pursue like long-run survival, maintaining market share, and managerial utility.
Cost volume profit analysis
This document discusses key concepts in cost volume profit (CVP) analysis including:
1) CVP analysis explores the relationship between costs, revenue, volume and their impact on profits. It examines fixed costs, variable costs, semi-variable costs, contribution margin, break-even point, and profit-volume ratio.
2) Fixed costs remain the same for different production levels while variable costs change with output. The margin of safety is the difference between actual and break-even sales.
3) The profit-volume ratio measures the rate of change in profit due to changes in sales volume and can be calculated in different ways. Ratio analysis is used to evaluate liquidity, investment risk and returns, financial leverage, and
The Theory Of The Firm
The document discusses the theory of the firm, including production functions, costs, revenues, and profit maximization. It explains that in the short run, firms have at least one fixed factor of production, while in the long run all factors are variable. It also describes how firms aim to maximize profit by producing at the quantity where marginal revenue equals marginal cost.
Ch08
The document discusses costs and output decisions for firms in the long run and short run. It provides an example of a car wash earning positive profits in the short run by setting output where marginal revenue equals marginal cost. In the long run, firms will enter industries with profits and exit industries with losses, driving prices down to minimum average costs and eliminating profits. The long-run equilibrium occurs where price equals average costs.
Ch08
The document discusses costs and output decisions for firms in the long run and short run. It provides an example of a car wash earning positive profits in the short run by setting output where marginal revenue equals marginal cost. In the long run, firms will enter industries with positive profits and exit industries with losses until prices equal minimum long-run average costs and profits are driven to zero.
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Profit maximization
- 1. Submitted by :- Saurabh Bhambhani 15-AEM-10|GI-9230 Aligarh Muslim University
- 2. is the making of gain in Business activity for the benefit of the owners of the business.
- 3. The cost of all factors of production. The total amount of money that the firm receives from sales of its product or other sources.
- 4. Profit is the surplus of revenue over and above all paid-out costs, including both manufacturing and overhead expenses. It is the difference between a Company’s total revenue and its opportunity cost.
- 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
- 9. 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 : THE CHANGE IN REVENUE WHICH COMES FROM SELLING AN ADDITIONAL UNIT OF OUTPUT. MARGINAL COST : THE CHANGE IN COST WHICH COMES FROM PRODUCING AN
- 10. •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.
- 11. Haziness of the concept “Profit” IgnoresTimeValue of Money Ignores the Risk Ignores Quality
- 12. Thank You