Mr mc profit maximizing rule why

Refer carefully to Figure 2 when describing these relationships. Total fixed costs are the costs that must be paid whether the firm produces or not. Total variable costs are the costs that rise or fall as production rises or falls. What Have We Learned? Recap the profit maximizing rule, and stress the difference between accounting and economic profits.

Instructor's Resource Manual. The next section describes how marginal cost illustrates the firm's supply of the output. Agriculture Law and Management Accessibility. Info Share. A manager maximizes profit when the value of the last unit of product marginal revenue equals the cost of producing the last unit of production marginal cost. Maximum profit is not maximum productivity unless cost of variable input is zero variable input is free , or price of output is infinite; since neither of these is likely to occur, we can confidently state that maximum profit is not earned by maximizing production.

Restated, MC is infinite where production is maximized. A perfectly competitive firm can sell as large a quantity as it wishes, as long as it accepts the prevailing market price. Total revenue is going to increase as the firm sells more, depending on the price of the product and the number of units sold.

If you increase the number of units sold at a given price, then total revenue will increase. If the price of the product increases for every unit sold, then total revenue also increases.

Total revenue and total costs for the raspberry farm are shown in Table 1 and also appear in Figure 1. In Figure 1, the horizontal axis shows the quantity of frozen raspberries produced. The vertical axis shows both total revenue and total costs, measured in dollars. The total cost curve intersects with the vertical axis at a value that shows the level of fixed costs, and then slopes upward, first at a decreasing rate, then at an increasing rate.

In other words, the cost curves for a perfectly competitive firm have the same characteristics as the curves that we covered in the previous module on production and costs. Figure 1. Total revenue for a perfectly competitive firm is an upward sloping straight line.

The slope is equal to the price of the good. Total cost also slopes up, but with some curvature. At higher levels of output, total cost begins to slope upward more steeply because of diminishing marginal returns. Graphically, profit is the vertical distance between the total revenue curve and the total cost curve. This is shown as the smaller, downward-curving line at the bottom of the graph.

The maximum profit will occur at the quantity where the difference between total revenue and total cost is largest.

Based on its total revenue and total cost curves, a perfectly competitive firm like the raspberry farm can calculate the quantity of output that will provide the highest level of profit. At any given quantity, total revenue minus total cost will equal profit. One way to determine the most profitable quantity to produce is to see at what quantity total revenue exceeds total cost by the largest amount.

By Van Thompson. Balancing Expenses and Revenues When you design or sell a new product, you incur a variety of costs that can include manufacturing or purchasing from a manufacturer, advertising the product, packaging and -- particularly if the product requires upkeep or is a live plant -- product care.

Planning for the Unexpected When you design a budget for creating a new product, it can be challenging to anticipate all costs. Employee Costs One of the most significant costs faced by most businesses is the combined cost of paying employees, maintaining office safety and providing upkeep for employee work spaces.

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