Maximization Of Profit

Maximization Of Profit

 *It may be short run or long run process .

 * Determine the best price and output level that returns the greatest profit .

 * It can be negative for consumer if the company starts to use cheaper products or decides to raise unreasonable price .

 ( # ) There are two methods for profit maximization .

 1> Marginal cost = Marginal revenue method 

2> Total cost = Total revenue method 

* Profit = total revenue - total cost


(#) Profit Maximization With The Help Of TR & TC

 
  





 ( see above figure )

Gross Profit = Total Revenue - Total Cost
                         
                     = TR - TC

 (1) At Q level of output 

    G.P = TR - TC 

            = QO - QO

            = 0

 This is B.E.P ( Break Even Point )

 (2) At Q1 level of output

         G.P = TR - TC 

               = Q1.A -  Q1.F

                = AF ( i.e., Profit )

 (3) At Q2 level of output 

            G.P = TR - TC

                  = B.Q2 - E.Q2

                  = BE ( Profit ) 

 (4)  At Q3 level of output

               G.P = TR - TC

                       = C.Q3 - D.Q3 

                       = CD ( Profit )

-----> From the above calculation we have conclude that producer
produce Q2 level of output because at Q2 level producer gain maximum profit i.e., BE ( Maximum vertical distance between TR & TC )


 (#) Profit Maximization Curve Of MR & MC

 

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