The profit maximising firm essay

In the short run economy, one of the two hypothetical inputs has to be fixed. When you focus first and foremost on. Understand that the key characteristic of oligopoly is interdependence, apply game theory to examples, and accurately draw the kinked demand curve.

The profit maximising firm essay

Useful Notes on Equilibrium of Multi-plant Monopolist Article shared by Here we will discuss about a monopolist, who produces a homogenous product in two or more different plants with different cost conditions.

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It is referred to as a case of Multiplan monopoly. To maximise profits, the monopolist has to make two important decisions. Firstly, how much output to produce altogether and at what price to sell it so as to maximise profit?

Secondly, how to allocate the optimal profit maximising output between the different plants? Thus, the Multiplan monopolist not only faces the problem of determining the profit maximising price and output levels.

He has also to decide a profit maximising way for distributing this output among the various plants, which in turn depends upon the cost conditions prevailing in each plant.

If the marginal cost of production in any plant is lower than that in the others, then it costs relatively less to produce an additional unit of output in this plant in comparison to the other plants.

The concerned monopolist can reduce his total costs and hence raise his profit level by diverting production from other higher cost plants to that specific plant. Ultimately, the cost minimising or profit maximising allocation of total output among different plants of a Multiplan monopolist can be achieved, when the marginal cost of production is equated across all the plants.

Examples and exercises on a profit-maximizing monopolist that sets a single price

Now, no more further redistribution of output from one plant to the other can reduce the overall costs of production. As far as the determination of the profit maximising output level is concerned, the Multiplan monopolist just like an ordinary monopolist or any profit maximising firm applies the marginalist rule of the equality of marginal revenue MR and total marginal cost MC in the market.

This is described below in case of a monopolist operating with two plants. It can easily be generalised to any number of plants. The monopolist is supposed to know the cost structures of the different plants besides the market demand or average revenue curve AR and the corresponding marginal revenue curve MR.

The firm will sell this output at equilibrium price OP. The monopolist is now confronted with the problem of allocating the profit maximising output OQ between the two plants in an optimal manner.

He will allocate this output in a way such that marginal cost of each plant is equal to the Multiplan marginal cost at the optimal output level, i. From the foregoing discussion, it can be inferred that the Multiplan monopolist maximises his profits and attains equilibrium by utilising each plant up to the level at which the marginal costs are equal to each other and to the common marginal revenue and total marginal cost in the market.Profit vs.

Wealth Maximization Profit maximization vs Wealth maximization is a very common but a very crucial dilemma. The financial management has come a long way by shifting its focus from traditional approach to modern approach. The difference between the two namely minimizing the cost and maximizing the profit are well brought out by several researchers in this forum.

Of course, this is an implicit expression for the first firm’s best-response function because it determines the profit-maximising quantity of the first firm (q 1) for any value of q 2.

Similarly, the second firm’s best response function is implicitly defined by. Maximizing Profit and the Average Cost Curve. Instructor: Alex Tabarrok In fact, notice that the breakeven price is $17, which is the minimum of the average cost curve.

In order to make a profit, the firm at least has to meet the minimum of its average cost curve. The benefit of the course and essay roo reviews is inflicted for the flow.

Profit Maximization in The Short Run TR-TC approach The firm achieves maximum profit where the vertical distance between the total revenue and total cost curves is greatest.

The profit maximising firm essay

MR-MC approach In the short run, the firm will maximize profit or minimize loss by producing that output at which marginal revenue equals marginal cost (MR=MC). As far as the determination of the profit maximising output level is concerned, the Multiplan monopolist (just like an ordinary monopolist or any profit maximising firm) applies the marginalist rule of the equality of marginal revenue (MR) and (total) marginal cost (MC) in the market.

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