Profit Maximization is when MC=MR, while Revenue Maximization is when MR=0. Is this true?
any information would be helpful.
Also, is the value of "normal profit" equal to "total cost"? You don't have to answer this question. Answering either question would be appreciated. Thank you!
Answer:
Yes, profit maximization is when MC=MR. profit is Revenue-Cost, and both revenue and cost are function of quantity, with first derivatives being MC and MR, so profit is maximized when the derivatives are equal. If you have not taken calculus, just remember that profit is maximized when MC=MR.
Following the same reasoning, revenue is maximized when MR=0.
Normal profit is not always equal to total cost. It could be, for example, in the long run in a competitive industry, but does not have to be.
Hope this helps.
Correct! Profit maximization happens when the change in cost equals the change in revenue. If you view a market over the long-term, then you will acquire a supply & demand graph that shows that as long as people can make a profit on supplying the market, then supply will increase over this term. At some point, the demand for the market will saturate and suppliers will offer discounted prices to buyers until they reach an equilibrium point (i.e. MC = MR). Those are are efficient will remain in the business and those that are not efficient will be pushed out.
When MR=0, then prices are flattening out based on the supply of product in the market; this is the equalibrium point that I was referring to above.
An example would include a market for I/C chips of 3.2 to 3.6 GigHz would include a supply of 1.0 billion chips. Based on this supply, the purchasers acquire the entire amount for $100 per chip (... on average...). This is the pioneering chip within the market, then the manufactures will sell chips at a price that depletes their yearly supply but maximize profit. As the market matures the following year, then the prices will not accelerate as quickly; this acceleration is the MR line. If other suppliers see that there is profit to be made, then more will enter the market and add to the supply line. The existing chip-manufacturers will probably try to discount the existing prices of products and decrease the increase of prices quicker. It will continue until prices flatten out; this is the long-run supply/revenue/price line.
Please note that marginal relates to the change in these fields and not the value. If the net change in cost = net change in revenue, then you are effectively initiating cost-based-pricing where the merchandise is at standard cost. Also it is good to view economics using micro-economics views.
Hope that helps!
W.
this is the profit max. formula.IN A MONOPOLY.
P = MC .IN A PERFECTLY COMPETITIVE INDUSTRY.
That's an important distinction and I didn't see that mentioned anywhere above when I scanned their answers.
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Also, is the value of "normal profit" equal to "total cost"? You don't have to answer this question. Answering either question would be appreciated. Thank you!
Answer:
Yes, profit maximization is when MC=MR. profit is Revenue-Cost, and both revenue and cost are function of quantity, with first derivatives being MC and MR, so profit is maximized when the derivatives are equal. If you have not taken calculus, just remember that profit is maximized when MC=MR.
Following the same reasoning, revenue is maximized when MR=0.
Normal profit is not always equal to total cost. It could be, for example, in the long run in a competitive industry, but does not have to be.
Hope this helps.
Correct! Profit maximization happens when the change in cost equals the change in revenue. If you view a market over the long-term, then you will acquire a supply & demand graph that shows that as long as people can make a profit on supplying the market, then supply will increase over this term. At some point, the demand for the market will saturate and suppliers will offer discounted prices to buyers until they reach an equilibrium point (i.e. MC = MR). Those are are efficient will remain in the business and those that are not efficient will be pushed out.
When MR=0, then prices are flattening out based on the supply of product in the market; this is the equalibrium point that I was referring to above.
An example would include a market for I/C chips of 3.2 to 3.6 GigHz would include a supply of 1.0 billion chips. Based on this supply, the purchasers acquire the entire amount for $100 per chip (... on average...). This is the pioneering chip within the market, then the manufactures will sell chips at a price that depletes their yearly supply but maximize profit. As the market matures the following year, then the prices will not accelerate as quickly; this acceleration is the MR line. If other suppliers see that there is profit to be made, then more will enter the market and add to the supply line. The existing chip-manufacturers will probably try to discount the existing prices of products and decrease the increase of prices quicker. It will continue until prices flatten out; this is the long-run supply/revenue/price line.
Please note that marginal relates to the change in these fields and not the value. If the net change in cost = net change in revenue, then you are effectively initiating cost-based-pricing where the merchandise is at standard cost. Also it is good to view economics using micro-economics views.
Hope that helps!
W.
this is the profit max. formula.IN A MONOPOLY.
P = MC .IN A PERFECTLY COMPETITIVE INDUSTRY.
That's an important distinction and I didn't see that mentioned anywhere above when I scanned their answers.
The answers post by the user, for information only, FunQA.com does not guarantee the right.
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