1 / 13

MC, MR

Rule The firm should produce where MR = MC PROVIDED that above that output MC exceeds MR and below that output MR exceeds MC. MC, MR. MC. Q. O. Q 1. Q 2. MR. Shut down point. Costs, revenue. AC. P = AVC. AVC. AR = D. Q. O. Q. Using calculus to find maximum profit output.

gilon
Download Presentation

MC, MR

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Rule The firm should produce where MR = MC PROVIDED that above that output MC exceeds MR and below that output MR exceeds MC. MC, MR MC Q O Q1 Q2 MR

  2. Shut down point Costs, revenue AC P = AVC AVC AR = D Q O Q

  3. Using calculus to find maximum profit output • TR = 48Q – Q2 • TC = 12 + 16Q + 3Q2

  4. FINDING WHERE MR = MC • MR = dTR dQ MC = dTC dQ • Differentiating the TR and TC gives dTR = 48 – 2Q = MR dQ dTC = 16 + 6Q = MC dQ

  5. Profit is maximized where MR = MC: 48 – 2Q = 16 + 6Q • Solving this for Q gives: 32 = 8Q Q = 4 • The equation for total profit is Tπ = TR –TC = 48Q – Q2 – (12 + 16Q + 3Q2) = -12 + 32Q – 4Q2 Putting Q = 4 Tπ = 52

  6. Slope = – 1 Slope = – 2 AR Q MR

  7. A price taking firm (a) The market (b) The firm P S AR,MR (RS) D=AR = MR P* D O Q O Q (millions)

  8. Firm makes super normal profits Costs, revenue MC AC D=AR = MR AR T V AC L K Q O Q*

  9. Firm makes normal profits Costs, revenue MC AC` T D=AR = MR V AR Q O Q*

  10. Firm makes loss Costs, revenue MC AC`` S AC U D=AR = MR AR V T Q O Q*

More Related