AP Microeconomics 3.5, 3.6, and 3.7 Profit maximization

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marginal cost

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additional cost from producing an additional unit

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marginal revenue

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additional revenue from the sale of an additional unit

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14 Terms

1
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marginal cost

additional cost from producing an additional unit

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marginal revenue

additional revenue from the sale of an additional unit

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MR is the

price

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Profit maximizing rule

MR=MC

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profit maximizing quantity in graph

intersection of MC and MR

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If the price is greater than ATC it means that

the firm is profiting

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If the price is less than ATC but greater than AVC it means that

the firms is losing but should NOT shut down

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If the price is les than ATC and AVC it means that

the firm is losing and should shut down

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profit formula

TR-TC ; tr=mr times q

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sunk cost

cost that has already been incurred and therefore should not play into the decision making process

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Perfect competition has

  • many firms

  • identical products

  • price takers

  • no barriers

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perfect competition on a graph: price

set by market

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perfect competition on a graph: set dotted line to

MR=D=AR=P

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perfect competition on a graph: firms will produce where

MR=MC