Profit maximization for the single-price-searching
firm (short run) NOTES Profit = total revenue – total cost Profit will be maximized when the difference between TR and TC is the greatest. In other words, at max-profit output Qπ, marginal profit (i.e., ∆profit/∆output) is equal to zero. By definition, marginal profit = marginal revenue –
marginal cost. Maximum-profit output for single-price searcher The familiar straight-lined downward-sloping demand curve generates a dome-shaped TR. If the single price (P) must be lowered to sell more, MR is below P for
every output because: Since (∆P/∆Q) < 0 because a single-price searcher must
lower price to sell more, For a straight line demand curve, MR is half the value of P. For a single-price searcher, therefore, at its max-profit output Qπ, P > MR = MC. Measuring profit with P (Price) and ATC under downward-sloping
demand curve Even with P above MC, positive profit is not guaranteed: Single-pricing under downward-sloping demand curve If a single-price searcher is forced to price its output equal to MC where MR=MC, there will be excess demand and loss if MC is below ATC (or lower profit if MC is above ATC). If a single-price searcher is forced to price its output equal to MC
where MC intersects the demand curve, there will be lower profit if MC
is above ATC or greater loss if MC is below ATC. |
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