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Profit maximization

Profit maximization

Learn how firms maximize profit by producing a quantity where marginal cost equals marginal revenue. In a competitive market, firms are price-takers, and marginal revenue is constant. Rational firms will produce more if marginal revenue is higher than marginal cost. Profit is maximized when the area of the rectangle formed by average total cost ...

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Maximizing the Profit Margin? According to the marginal principle, the firm should choose the quantity of output at which price equals marginal cost. A tempting alternative is to maximize the firm's profit margin, defined as the difference between price and short-run average total cost. Use the firm's short-run cost curves to evaluate this approach. Draw the firm's short-run supply curve and compare it to the supply curve of a firm that maximizes its profit. | Numerade

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