Chapter 8.3: Marginal Revenue, Marginal Cost, and Profit Maximization

Profit

the difference between (total) revenue and (total) cost

revenue

finding the firm’s profit-maximizing output level means analyzing its ___.

Revenue

equal to the price of the product P times the number of units sold R = Pq

the greatest

To maximize profit, the firm selects the output for which the difference between revenue and cost is ___.

Marginal Revenue

the change in revenue resulting from a one-unit increase in output. The slope of the revenue curve.

Marginal Cost

The slope of this curve, which measures the additional cost of producing one additional unit of output

positive; zero

The total cost is ___ when output is ___ because there is a fixed cost in the short run.

negative

Profit is ___ at low levels of output because revenue is insufficient to cover fixed and variable costs.

q*

the profit-maximizing output level

MR(q) = MC (q)

Profit is maximized when

no effect

How much output the firm decides to sell will have ___ on the market price of the product.

Industry supply and demand curves

determines the market price

MR = MC = P

Along the demand curve of an individual firm in a competitive market