Profit maximisation
Where is profit maximised ?
Why do firm’s profit maximise?
QUESTION
Profits are maximised at an output level where marginal cost = marginal revenue.
MC = MR
Or
It is the output at which the difference between the total revenue (TR) and total
costs (TC) is greatest.
Why do firms profit maximise ?
+ Supernormal profits can be used to fund in R+D or innovation in order to grow and
gain a competitive advantage.
• For example, Apple and pharmaceutical companies are likely to profit maximise
-
since they need the money to reinvest.
+ Shareholders benefit from higher dividends.
+ Profits enable firms to build savings to help during a downturn.
ANSWER
, Profit maximisation
Show profit maximisation on a diagram
QUESTION
PRICE
MC
AC
At the profit maximisation level of
output (MC = MR)
,
◦ The selling price is P1
◦ The average cost is C1
◦ The supernormal profit = P1, C1, A, B
portmaxmisation
Q1
MR
QUANTI-Y
AR
ANSWER
Where is profit maximised ?
Why do firm’s profit maximise?
QUESTION
Profits are maximised at an output level where marginal cost = marginal revenue.
MC = MR
Or
It is the output at which the difference between the total revenue (TR) and total
costs (TC) is greatest.
Why do firms profit maximise ?
+ Supernormal profits can be used to fund in R+D or innovation in order to grow and
gain a competitive advantage.
• For example, Apple and pharmaceutical companies are likely to profit maximise
-
since they need the money to reinvest.
+ Shareholders benefit from higher dividends.
+ Profits enable firms to build savings to help during a downturn.
ANSWER
, Profit maximisation
Show profit maximisation on a diagram
QUESTION
PRICE
MC
AC
At the profit maximisation level of
output (MC = MR)
,
◦ The selling price is P1
◦ The average cost is C1
◦ The supernormal profit = P1, C1, A, B
portmaxmisation
Q1
MR
QUANTI-Y
AR
ANSWER
