# how to find maximum profit microeconomics

We want to begin by starting with revenue. First we will look at when Price is greater then the Average Cost. We can now manipulate the equation and we know that Q/L = APL from above. It should be noticeable from the graphs that the TC area is larger than the TR area.The Second Graph We will begin with the definition of profit. When Profit is maximized and minimized the MC = MR. As you can see this forms a rectangle and the Area of the rectangle is the TR. Figure 1. These questions allow you to get as much practice as you need, as you can click the link at the top of the first question (“Try another version of these questions”) to get a new set of questions. This last equation is incredibly important to understand. In (c), price intersects marginal cost below the average cost curve. First Graph Play the simulation below multiple times to practice applying these concepts and to see how different choices lead to different outcomes. Calculate the level of output the firm will produce if its objective is to maximize profit. APL = Average Product of Labor These equations were defined and explained in the Background. Now we can find the profit. In order to determine the monopolist’s economic profit per unit and total profit, you take the following steps: Determine the average total cost equation by dividing the total cost equation by the quantity of output q. Here are total cost formulas, average variable, marginal cost, and more, (work out your own algebra to find alternatives): Average Total Cost (ATC) = Total Cost / Q (Output is quantity produced or ‘Q’)Average Variable Cost (AVC) = Total Variable Cost / QAverage Fixed Cost (AFC) = ATC – AVC Total Cost (TC) = (AVC + AFC) X Output (Which is Q) However, maximizing profit does not necessarily mean that economic profit will be earned. We have our necessary quantity marked and now we must look at the area under the AC curve. Microeconomics Assignment Help, Calculate profit maximizing output level , Qustions: You are the sales manager at SoftSystem, a dominant firm that produces operating system. Profit is maximized at the quantity q* and is lower at all other quantities. The farm’s total revenue at this price will be shown by the large shaded rectangle from the origin over to a quantity of 65 packs (the base) up to point E” (the height), over to the price of \$2, and back to the origin. It should be noticeable from the graphs that the TR area is larger than the TC area. The shaded box represents the TR. Total costs will be the quantity of 85 times the average cost of \$3.50, which is shown by the area of the rectangle from the origin to a quantity of 85, up to point C, over to the vertical axis and down to the origin. AR = MR =P This video uses numbers to explain total product, average production, and marginal product. At point B the slope reaches its maximum and this is where the Average will reach its maximum as well. Since price is equal to average cost, the firm is breaking even. Next we find the slope of the cost curve. 10.3. This is because the first derivative gives the slope of a function. For example, if you’re starting with the function f(x) = 3x + 2x - x^2 + 3x^2 + 4, you would combine the x^2 and x terms to simplify and end up with f(x) = 2x^2 + 5x + 4. Since the price is less than average cost, the firm’s profit margin is negative. TR = PQ r*K = wage rate * Capital We have explained the condition for the firm’s maximum profit in terms of TR and TC. As average product of labor (APL) increases the AVC decreases and as the APL decreases the AVC increases. We’d love your input. For a perfectly competitive market to maximize profits MR must equal Marginal cost and in the long run this profit will be equal to zero. MR=  ΔTR/ΔQ=  (Δ(P*Q))/ΔQ=(P* ΔQ)/ΔQ=P To find the average you must divide by the quantity. The firm will continue to produce if Marginal Revenue is greater then the Marginal Cost. APL=  TPL/Q=  Q/L 3. Jan Hagemejer dvanced Microeconomics. MC – Marginal Cost The pattern of costs for the monopoly can be analyzed within the same framework as the costs of a perfectly comp… In economics a Monopoly is a firm that lacks any viable competition, and is the sole producer of the industry's product. MR – Marginal Revenue We want to first identify where our TR is on our graph. In the firm this in the only range in which it will produce output. This is aimed toward those who have taken or are currently taking Intermediate Microeconomics. So shift the revenue function parallel downward toward costs until it only touches on one point. The TC curve from above is incorporated in the graph below. Thus, the firm’s profit margin is the distance between E’ and C’, and it is positive. Learn about the profit maximization rule, and how to implement this rule in a graph of a perfectly competitive firm, in this video. Now consider Figure 1(b), where the price has fallen to \$2.75 for a pack of frozen raspberries. Share it with us! Many producers Table 1 summarizes this. MR=  ΔTR/ΔQ=  (Δ(P*Q))/ΔQ=(P* ΔQ)/ΔQ=P AXES We have our necessary quantity marked and now we must look at the area under the AC curve. We substitute P*Q again into the equation and can pull out the P because it is constant. We have our necessary quantity marked and now we must look at the area under the AC curve. Remember that the area of a rectangle is equal to its base multiplied by its height. TFC = Totao Fixed Cost Profit maximization. Pro t maximization problem The formal de nition: (with production set Y ) given a price vectorm p ˛0 and a production vector y 2RL: the pro t is ˇ(p ) = p y = PL l =1 p l y l:(total revenue minus total cost) (1) the pro t maximization problem (PMP): Max y p y ; s.t. The first graph is the Total Product of Labor Curve (TPL) Also, calculate the maximum profit that the firm can earn At this point P =AVC the firm must make decisions as to whether it should continue to produce or shut down. We substitute P*Q into the equation and we come to see that AR = P because the Q cancels in the numerator and denominator. It means that at some price you will have a horizontal AR and MR curve and this coincides with the demand curve. Watch this video for more practice solving for the profit-maximizing point and finding total revenue using a table. How can you calculate Maximum Profit in a Monopoly? From previous knowledge we know that TVC =wL. The Monopoly maximizes it's Profit at the quantity of output where marginal revenue equals marginal cost. This is also the point where our MC = MR. Did you make this project? AVCTR : profit is negative The difference between total revenues and total costs is profits. This is shown in the graph. We draw a straight line from the price axis to where the price lays tangent to the AC curve where the Q =AC and use this new price to find the Area under the curve. The firm is making money, but how much? Need to understand how to plot the Total Product of Labor Curve, Average Product of Labor Curve, and the Marginal Product of Labor Curve. Total costs will be the quantity of 75 times the average cost of \$2.75, which is shown by the area of the rectangle from the origin to a quantity of 75, up to point E, over to the vertical axis and down to the origin. For a firm in perfect competition, demand is perfectly elastic, therefore MR=AR=D.    Δ = the change in AVC=  TVC/Q=  wL/Q=w/(Q/L)=  w/APL TR = P*Q So we must find where MC =MR and draw a vertical line down to the Quantity axis and find the Quantity which correlates to the Price chosen. But one way to think about it, very generally, it's how much a firm brings in, you could consider that its revenue, minus its costs, minus its costs. The Total Product Curve is shown in the first graph. Necessary Conditions: Profit maximization. ***It is important to note that between point B and C the MPL is positive and declining. Visual tutorial on production theory. Characteristics of Perfect Competition: And a rational firm will want to maximize its profit. The curvature of the profit function is consistent with a negative second derivative and results in q* being a quantity of maximum profit. TVC = Total Variable Cost AR=  TR/Q=(P*Q)/Q=P A negative economic profit implies that you could be doing better by pursuing an alternative opportunity. When the TC = TR the AC = MR. As we stated above when the total revenue is greater then the total cost we have positive profit and when the TC is greater then the TR the profit is negative. Since price is less than average cost, the firm is making a loss. The profit maximization rule formula is MC = MR Marginal Costis the increase in cost by producing one more unit of the good. Marginal revenue represents the change in total revenue associated with an additional unit of output, and marginal cost is the change in total cost for an additional unit of output. Total costs will be the quantity of 65 times the average cost of \$2.73, which the area of the rectangle from the origin to a quantity of 65, up to point C”, over to the vertical axis and down to the origin shows. Quantity = Q It never makes sense for a firm to choose a level of output on the downward sloping part of the MC curve, because the profit is lower (the loss is bigger). TC is always above TVC. From this we can Combine the TR,TC curve with the MC, AC, and the Profit graphs to find the point at which the firm maximizes profit. Revenue = Price * Quantity This is also previously known. Profits for the monopolist, like any firm, will be equal to total revenues minus total costs. In economics, profit maximization is the short run or long run process by which a firm may determine the price, input, and output levels that lead to the highest profit.      B = Point of Maximum Slope                                π=TR-TC Marginal Revenue is the change in total revenueas a result of changing the rate of sales by one unit. Profit = Total Revenue – Total Costs Therefore, profit maximization occurs at the most significant gap or the biggest difference between the total revenue and the total cost. The average product is the TPL/Q and the MPL is the slope of the TPL curve.                          MNR = MR – MC = 0 In (a), price intersects marginal cost above the average cost curve. Your             Δπ/ΔQ=ΔTR/ΔQ-  ΔTC/ΔQ The farm’s total revenue at this price will be shown by the large shaded rectangle from the origin over to a quantity of 75 packs (the base) up to point E (the height), over to the price of \$2.75, and back to the origin. The First Graph TC = Total Cost The firm's marginal cost function is MC = 3 + 0.001Q, and at the profit maximizing level of output the average variable cost (AVC) is \$5.50 and the average fixed cost (AFC) is \$0.75. Practice what you've learned about profit maximization and how to apply the profit maximization rule in this exercise. It is as though all the previous actions are ‘sunk’. The height of the average cost curve at Q = 75, i.e. Consider a monopoly firm, comfortably surrounded by barriers to entry so that it need not fear competition from other producers.             Profit = Total Revenue – Total Cost Substituting 2,000 for q in the demand equation enables you to determine price. This means we will have a horizontal line at the chosen price which is shown on the graph.                 TC = P0QThird Graph As the marginal product of labor increases the MC decreases and when the marginal product of labor decreases the MC increases.                                                 TC = VC + FC The calculations are as follows: In Figure 1(c), the market price has fallen still further to \$2.00 for a pack of frozen raspberries. B) TR = TC : profit is zero The TR –TC will be the shaded region below. As we have seen when P>AVC the firm continues to produce and when PAC Next we have to find the TC. The average cost of producing 85 packs is shown by point C’ or about \$3.50. Free entry and free exit. Now, profit, you are probably already familiar with the term. Again, the perfectly competitive firm will choose the level of output where Price = MR = MC, but in this case, the quantity produced will be 75. For perfect competition in order to maximize profit the MNR must equal zero. https://cnx.org/contents/vEmOH-_p@4.48:EkZLadKh@7/How-Perfectly-Competitive-Firm, https://www.youtube.com/watch?v=BQvtnjWZ0ig, Use the average cost curve to calculate and analyze a firm’s profits and losses, Identify and explain the firm’s break-even point. Target Audience: Between TC and TVC the distance is TFC. How to Find Minimum Profit with Calculus: Steps Plug in your value for ‘t’ in the original equation. Economic profit is the method of calculating profit including both explicit and implicit costs. Thus, the firm is making zero profit. Marginal Revenue is also the slope of Total Revenue. The firm will continue to operate as long as it covers its variable cost, which is does. Table of Contents Section Page Section 1: Profit Maximization in Mathematical Economics 2 This will give us our Average Revenue (AR) How can you be certain that you make the best financial decision when evaluating whether to take a job or invest in a new business opportunity? The rule for a profit-maximizing perfectly competitive firm is to produce the level of output where Price= MR = MC, so the raspberry farmer will produce a quantity of approximately 85, which is labeled as E’ in Figure 1(a).