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Example

A firm faces a price of $4 and total costs described by the equation TC = Q^3 - 7Q^2 + 12Q + 5. Using calculus, the marginal revenue is set equal to the marginal cost to find the profit-maximizing output level. This occurs at an output of 4 units, where the slope of the marginal cost curve is positive. At this level of output, the firm's total profit is calculated to be $11.

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156 views3 pages

Example

A firm faces a price of $4 and total costs described by the equation TC = Q^3 - 7Q^2 + 12Q + 5. Using calculus, the marginal revenue is set equal to the marginal cost to find the profit-maximizing output level. This occurs at an output of 4 units, where the slope of the marginal cost curve is positive. At this level of output, the firm's total profit is calculated to be $11.

Uploaded by

malingaperera
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Example

A perfect competitive firm faces P=4 and TC = Q3 7Q2 + 12Q+5 Determine by using calculus the best level of out put of the firm by the marginal approach. TR = PQ = 4Q MR = d(TR) = 4 = P dq MC = d(TC) = 3Q2 14Q +12 dq

4 = 3Q2 14Q +12 0 = 3Q2 14Q +8 0 = (3Q 2)(Q-4) So that , Q = 2/3 and Q = 4 Thus, MR =MC at Q =2/3 and Q=4 In order for profit maximized rather than minimized, the MC curve should be rising(slope must be positive) at the point where MR =MC. Slope of the MC curve = d(MC) = 6Q -14 dq At Q=2/3, the slope is -10(the firm minimizes total profit) At Q=4, the slope is 10 so the firm maximizes its total profits.

Find the total profit of the firm at this level of out put Profit = TR TC = 4Q - 3Q2 14Q +12 = - Q3 7Q2 +8Q-5 = -64+112-32-5 = 11

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