Profit Maximisation

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Marginal Cost
The addition to total costs from producing and selling one more unit
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Marginal Revenue
The addition to total revenue from producing and selling one more unit
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What happens if we produce before the profit maximisation point?
MR > MC so producing and selling extra units is profitable as you move closer to the PM point MR is falling and MC is rising. You are making less and less on each unit but it is still worth producing as you are adding to total profit
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What happens if we produce after the profit maximisation point?
MC>MR, so it costs you more to make the product than to sell it, therefore you would make a loss from that unit which will lower overall profit
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Golden Rule for Profit Maximisation
Produce where MC=MR, when MC is rising
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Other cards in this set

Card 2

Front

The addition to total revenue from producing and selling one more unit

Back

Marginal Revenue

Card 3

Front

MR > MC so producing and selling extra units is profitable as you move closer to the PM point MR is falling and MC is rising. You are making less and less on each unit but it is still worth producing as you are adding to total profit

Back

Preview of the back of card 3

Card 4

Front

MC>MR, so it costs you more to make the product than to sell it, therefore you would make a loss from that unit which will lower overall profit

Back

Preview of the back of card 4

Card 5

Front

Produce where MC=MR, when MC is rising

Back

Preview of the back of card 5

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