if they maximize their profits, what will their profits equal course hero

What is the pro profit maximization rule in economics?

Profit Maximization Rule. The Profit Maximization Rule states that i f a firm chooses to maximize its profits, it must choose that level of output where Marginal Cost (MC) is equal to Marginal Revenue (MR) and the Marginal Cost curve is rising. In other words, it must produce at a level where MC = MR.

Why is Mr = Mc the profit maximization point for monopolies?

The beauty of MR = MC as the profit maximization point is that it applies to all firms, both in perfect competition or monopoly. Let’s consider a firm whose total revenue, total cost, marginal revenue and marginal cost functions are given below:

Why does profit maximization occur at the most significant gap?

Therefore, profit maximization occurs at the most significant gap or the biggest difference between the total revenue and the total cost. Why is the output chosen at MC = MR? At A, Marginal Cost < Marginal Revenue, then for each additional unit produced, revenue will be higher than the cost so that you will generate more.

What is the profit maximizing condition for a perfectly competitive firm?

Profit maximizing condition for a perfectly competitive firm: P= MC Shutdown Decision if Price < Average Variable Cost Fixed inputs cannot be changed in the Short-Run Determines whether or not you actually sell

What is the profit maximization rule?

The Profit Maximization Rule states that i f a firm chooses to maximize its profits, it must choose that level of output where Marginal Cost (MC) is equal to Marginal Revenue (MR) and the Marginal Cost curve is rising. In other words, it must produce at a level where MC = MR.

What is included in per flight cost?

However, the per-flight cost also includes expenditures like rental of terminal space, general and administrative costs, and so on. These costs do not change with an increase in the number of flights, and therefore are irrelevant to that decision.

Is profit maximization elastic or inelastic?

The use of the profit maximization rule also depends on how other firms react. If you increase your price, and other firms may follow, demand may be inelastic. But, if you are the only firm to increase the price, demand will be elastic. 3.

What happens if MR is greater than MC?

It follow that if MR is greater than MC, a firm should increase production and if MR is less than MC, it should decrease production. The only point at which a firm doesn’t need to do anything to reach profit-maximization is the one at which MR=MC.

What is the optimal output rule?

Profit maximization rule (also called optimal output rule) specifies that a firm can maximize its economic profit by producing at an output level at which its marginal revenue is equal to its marginal cost.