Profit maximizing quantity
π (Q) = TR(Q) − TC(Q) .............(1)
(Economic profit) = (sales revenue) – (economic costs)
(Accounting profit) = (sales revenue) – (accounting costs)
Deriving Marginal Revenue Curve:
Amoroso-Robinson Formula:
Since demand curve is downward sloping, ε D is always positive. So MR is lower than AR (average revenue, i.e. Price). MR < P .
Ifε D = ∞(horizontal demand, infinitely elastic demand, or Q = 0), MR = AR(= P) .
Marginal Revenue, Price Elasticity and Total Revenue:
Profit Maximization: Revisited
a) Oversimplification problemb) Any alternative ways?c) Asymmetric Information
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