Chapter 21 - Profit maximization. This chapter presents the following content: Marginal Revenue, profit maximization and loss minimization, the short-run supply curve, the long-run supply curve, the shut-down and break-even points, economic efficiency. | Chapter 21 Profit Maximization 21-1 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Objectives Marginal Revenue Profit maximization and loss minimization The short-run supply curve The long-run supply curve The shut-down and break-even points Economic efficiency Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 21-2 Graphing Demand & Marginal Revenue Output Price Total Revenue Marginal Revenue 1 $5 $ 5 $5 2 5 10 5 3 5 15 5 4 5 20 5 5 5 25 5 6 5 30 5 21-3 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Total Revenue is price X output Marginal revenue is the increase in total revenue when output sold goes up by one unit Graphing Demand & Marginal Revenue Output Price Total Revenue Marginal Revenue 1 $5 $ 5 $5 2 5 10 5 3 5 15 5 4 5 20 5 5 5 25 5 6 5 30 5 21-4 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Profit Maximization and Loss Minimization Output Price TR MR TC ATC MC Total Profits 1 1 $200 $200 $200 $500 $500 $100 - $300 1 2 200 400 200 550 275 50 - 150 1 3 200 600 200 610 203 60 - 10 1 4 200 800 200 700 175 90 100 1 5 200 1000 200 830 166 130 170 1 6 200 1200 200 1000 167 170 200 1 7 200 1400 200 1205 172 205 195 21-5 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Profit Maximization Point: MC = MR Profit Maximization and Loss Minimization Output Price TR MR TC ATC MC Total Profits 1 1 $200 $200 $200 $500 $500 $100 - $300 1 2 200 400 200 550 275 50 - 150 1 3 200 600 200 610 203 60 - 10 1 4 200 800 200 700 175 90 100 1 5 200 1000 200 830 166 130 170 1 6 200 1200 200 1000 167 170 200 1 7 200 1400 200 1205 172 205 195 21-6 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Profit Maximization Point: MC = MR This occurs somewhere between 6 and 7 units. We are assuming output can be produced in tenths of a unit 21-7 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Profit Maximization and Loss . | Chapter 21 Profit Maximization 21-1 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Objectives Marginal Revenue Profit maximization and loss minimization The short-run supply curve The long-run supply curve The shut-down and break-even points Economic efficiency Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 21-2 Graphing Demand & Marginal Revenue Output Price Total Revenue Marginal Revenue 1 $5 $ 5 $5 2 5 10 5 3 5 15 5 4 5 20 5 5 5 25 5 6 5 30 5 21-3 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Total Revenue is price X output Marginal revenue is the increase in total revenue when output sold goes up by one unit Graphing Demand & Marginal Revenue Output Price Total Revenue Marginal Revenue 1 $5 $ 5 $5 2 5 10 5 3 5 15 5 4 5 20 5 5 5 25 5 6 5 30 5 21-4 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Profit Maximization and Loss Minimization Output Price TR MR TC ATC MC Total .
