Essay About Profit-Maximizing Price And Marginal Cost

Econ 528 Cheat Sheet
Marginal Cost, [pic 1]To find the profit-maximizing price, we need to find the price at which MR = MC.[pic 2], plug MR = MC to find the quantity[pic 3]Profit-maximizing price (plug the quantity from above)Total monthly profit, = P.Q – TC[pic 4]Output level that will maximize the profit, Profit maximization requires: MR = MC***When price is stable (constant), price equal marginal revenue***Optimal quantity for non-profit organizationFor a not-for-profit organization, [pic 5]Will create an equation, find the value of Q, if in the form of quadratic equation,         [pic 6]Quadratic equation will yield two values of X, use the higher value of XOutput, marginal cost, average cost, price, and profit at the average cost-minimizing activity level[pic 7]Average cost minimization requires that MC = AC (will yield two values of Qs, use the positive value) The positive Q is the outputPlug the Q value into MC equation to find MCPlug the Q value into AC equation to find AC, plug the Q value to find price[pic 8], plug the price and Q value to find profit[pic 9]Output, price, and total revenue at the revenue-maximizing activity levelTotal revenue is maximized at the output level where MR = 0Demand curve with quantity expressed as a function of pricePlug in the values: [pic 10]Demand curve with price expressed as a function of quantityRearrange the equation: [pic 11]Point price elasticity of demand at the price of $5Find the quantity at $5 then [pic 12]Price elasticity: [pic 13]Can be elastic(>1), inelastic(<1), or unitary elastic(=1)Profit maximization requires: MR = MCMarket equilibrium requires: QD = QSPrice elasticity of demand: [pic 14][pic 15][pic 16][pic 17][pic 18][pic 19]