53: Profit maximization

Question 1

principle of marginal alalysis

Answer 1

every activity should continue until marginal benefit = marginal cost

Question 2

marginal revenue

Answer 2

change in total revenue due to one more unit of output

Question 3

marginal revenue equation

Answer 3

MR = change in TR / change in quantity

Question 4

optimal output rule

Answer 4

profit is maximized by producing the quantity at which marginal revenue of the last unit = its marginal cost

Question 5

marginal cost curve

Answer 5

shows how the cost of producing one more unit depends of the quantity already produced

Question 6

marginal revenue curve

Answer 6

shows how marginal revenue varies as output varies

Question 7

steps to choose what is profitable (2)

Answer 7

1) should I produce at all? (at least normal profit)

2) how much should I produce (optimal output rule)