Marginal Revenue 


Perfect Competition 


Revenues under Perfect Competition 


Economic Profit 


Maximizing Profits 


Understanding marginal analysis 


Shut Down 


Mathematical Proof 

To find the quantity which maximizes profits, find the value at which the first derivative with respect to quantity is zero: d(Profit0/dQ = 0 d(TRTC)/dQ = 0 d(TR)/dQ  d(TC)/dQ = 0 d(TR)/dQ = d(TC)/dQ By definition, d(TR)/dQ = MR and d(TC)/dQ = MC Therefore, the condition for maximum profits is MR=MC. The second order condition (to ensure this is a maximum, not a minimum, is equivalent to saying that you must be in the range where MC is increasing. 
Shortrun ProfitMaximization Perfect competition 


Example  

TFC = 50 How many units of output should the firm produce

Question 1 Answer  

MR>MC for units 1, 2, 3, 4, 5, 6, but not 7. Therefore produce 6 units unless shutdown is better.

Question 3 Answer 


Answer Question 4  


Fixed costs 


Marginal Cost and Supply 


Real Life Applications 


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