PROFIT MAXIMIZATION

Profit Maximization  Profit =  Total Cost = Fixed Cost + Variable Cost  Fixed vs. Variable… examples?  Fixed – rent, loan payments, utilities  Variable – labor, raw materials  Firms want TR > TC…  But how do they maximize this profit?  MARGINAL ANALYSIS!!!! Total Revenue - Total Cost

Profit maximization  Marginal Cost = ∆ Price of Inputs / ∆ Output MC = ∆ Variable Cost/ ∆ Quantity  Marginal Revenue =  MC and MR are PER UNIT measurements  Profit Maximization: -As long as MR > MC, producers will continue to produce. -Reach the point where MR = MC Production Function.notebook Price each unit is sold for