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【正文】 fit maximization Chapter 8 Slide 10 Profit Maximization ? Do firms maximize profits? ? Implications of nonprofit objective ?Over the longrun investors would not support the pany ?Without profits, survival unlikely Chapter 8 Slide 11 Profit Maximization ? Do firms maximize profits? ? Longrun profit maximization is valid and does not exclude the possibility of altruistic behavior. Chapter 8 Slide 12 Marginal Revenue, Marginal Cost, and Profit Maximization ? Determining the profit maximizing level of output ? Profit ( ) = Total Revenue Total Cost ? Total Revenue (R) = Pq ? Total Cost (C) = Cq ? Therefore: ?)()()( qCqRq ???Chapter 8 Slide 13 Profit Maximization in the Short Run 0 Cost, Revenue, Profit ($s per year) Output (units per year) R(q) Total Revenue Slope of R(q) = MR Chapter 8 Slide 14 0 Cost, Revenue, Profit $ (per year) Output (units per year) Profit Maximization in the Short Run C(q) Total Cost Slope of C(q) = MC Why is cost positive when q is zero? Chapter 8 Slide 15 ? Marginal revenue is the additional revenue from producing one more unit of output. ? Marginal cost is the additional cost from producing one more unit of output. Marginal Revenue, Marginal Cost, and Profit Maximization Chapter 8 Slide 16 ? Comparing R(q) and C(q) ? Output levels: 0 q0: ? C(q) R(q) ? Negative profit ? FC + VC R(q) ? MR MC ? Indicates higher profit at higher output 0 Cost, Revenue, Profit ($s per year) Output (units per year) R(q) C(q) A B q0 q* )(q?Marginal Revenue, Marginal Cost, and Profit Maximization Chapter 8 Slide 17 ? Comparing R(q) and C(q) ? Question: Why is profit negative when output is zero? Marginal Revenue, Marginal Cost, and Profit Maximization R(q) 0 Cost, Revenue, Profit $ (per year) Output (units per year) C(q) A B q0 q* )(q?Chapter 8 Slide 18 ? Comparing R(q) and C(q) ? Output levels: q0 q* ? R(q) C(q) ? MR MC ? Indicates higher profit at higher output ? Profit is increasing R(q) 0 Cost, Revenue, Profit $ (per year) Output (units per year) C(q) A B q0 q* )(q?Marginal Revenue, Marginal Cost, and Profit Maximization Chapter 8 Slide 19 ? Comparing R(q) and C(q) ? Output level: q* ? R(q)= C(q) ? MR = MC ? Profit is maximized R(q) 0 Cost, Revenue, Profit $ (per year) Output (units per year) C(q) A B q0 q* )(q?Marginal Revenue, Marginal Cost, and Profit Maximization Chapter 8 Slide 20 ? Question ? Why is profit reduced when producing more or less than q*? R(q) 0 Cost, Revenue, Profit $ (per year) Output (units per year) C(q) A B q0 q* )(q?Marginal Revenue, Marginal Cost, and Profit Maximization Chapter 8 Slide 21 ? Comparing R(q) and C(q) ? Output levels beyond q*: ? R(q) C(q) ? MC MR ? Profit is decreasing Marginal Revenue, Marginal Cost, and Profit Maximization R(q) 0 Cost, Revenue, Profit $ (per year) Output (units per year) C(q) A B q0 q* )(q?Chapter 8 Slide 22 ? Therefore, it can be said: ? Profits are maximized when MC = MR. Marginal Revenue, Marginal Cost, and Profit Maximization R(q) 0 Cost, Revenue, Profit $ (per year) Output (units per year) C(q) A B q0 q* )(q?Chapter 8 Slide 23 C R ??Marginal Revenue, Marginal Cost, and Profit Maximization qR MR???qCMC???Chapter 8 Slide 24 orqCqR 0 q: w h e nm a x i m i z e d a r e P r o f i t s????????? ?MC ( q )MR(q)MCMR??? t h a tso0Marginal Revenue, Marginal Cost, and Profit Maximization Chapter 8 Slide 25 ? The Competitive Firm ? Price taker ? Market output (Q) and firm output (q) ? Market demand (D) and firm demand (d) ? R(q) is a straight line Marginal Revenue, Marginal Cost, and Profit Maximization Demand and Marginal Revenue Faced by a Competitive Firm Output (bushels) Price $ per bushel Price $ per bushel Output (millions of bushels) d $4 100 200 100 Firm Industry D $4 Chapter 8 Slide 27 ? The Competitive Firm ?The petitive firm’s demand ?Individual producer sells all units for $4 regardless of the producer’s level of output. ?If the producer tries to raise price, sales are zero. Marginal Revenue, Marginal Cost, and Profit Maximization Chapter 8 Slide 28 ? The Competitive Firm ?The petitive firm’s demand ?If the producers tries to lower price he cannot increase sales ?P = D = MR = AR Marginal Revenue, Marginal Cost, and Profit Maximization Chapter 8 Slide 29 ? The Competitive Firm ? Profit Maximization ?MC(q) = MR = P Marginal Revenu
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