chapter 8 - profit maximisation and shutdown condition

Question 1

total revenue formula

Answer 1

TR = P X Q

Question 2

average revenue formula

Answer 2

AR = TR/Q

Question 3

marginal revenue formula

Answer 3

change in TR / change in Q

Question 4

profit

Answer 4

TR - TC = (P x Q) - (ATC x Q)

Question 5

method 1

Answer 5

TR - TC
profit maximising output is where TR - TC is at a maximum (distance between TR and TC curve is the greatest)

Question 6

profit

Answer 6

TR - TC = P x Q - (ATC x Q)
Economic profit (+ve profit)
normal profit (zero profit)
losses (-ve profit)

Question 7

method 2

Answer 7

MR = MC
profit maximising output

MR > MC (inc output, inc profit. firm inc output)
MR = MC (profit maximising/loss minimising output lvl)
MR < MC (inc output, dec profit. firm dec output)