Profit Maximizing Output (Economics)

N

nonolegolfeur

New member
Joined
Jun 18, 2026
Messages
0
Reaction score
0
Hello,

I've a question concerning the equality MR = MC that maximized the profit.

If the marginal revenue is the change in total revenue that results from a one-unit increase in the quantity sold and the marginal cost,the opportunity cost of producing one more unit of good or service., it should not maximized profit but created a zero profit situation.

In other words, if producing one more unit of a good cost you the same amount that you will earn, you have just made a zero sum operation...

While I'm writing this post I'm sure the answer is really simple but I've to admit that my brain is a beat overheating tonight...

Anyway, thanks all for your answers !
 
Glad to see someone else also in the confusion....as I was confused and still need a confirmation that I got it right..

Two concepts:

Total Profit (total profit made) is different from Marginal Profit ( incremental profit made from selling one more unit)

-Total Profit increases as more and more goods are produced ( as long as cost < revenue in other words MC < MR )

- Marginal Profit decreases as more and more goods are produced ( dimnishing returns)

from above two

=> Total Profit increases as Marginal Profit decreases.

-If MP goes negative Total Profit starts to decline. so Totalk Profit is maximized when MP tends to zero.


Now MP = MR - MC
=> if MP = 0 => MR = MC

Am I making sense ??
 
BullPow you're right. A good resource for economics is wikipedia. This is a good place to look while you're at work and can't bust out your books.

http://en.wikipedia.org/wiki/Profit_maximization
 
I will try to explain things with a hypothetical example. Take for example general motors. GM has a plant that can produce 10,000 cars in a month. GM sells its car in a town that has population of 8000 (assume that everyone in the town wants a car).


1. GM produces only 4000 cars in a month that means demand is greater then supply. Producing additional cars will increase profits. MR>MC. There is scope to earn profits, but this is not profit maximizing point.
2. GM produces 9000 cars in a month. Supply greater then demand. This excess of supply means that cost incur to produce additional unit is higher then revenue generated. MR<MC
3. GM produces 8000 cars in a month. Demand is equal to supply. MR= MC this is point at which profits are maximized.


This example explains how things work in general. I hope things are clear now.



Note: Different market structures (monopoly, oligopoly, perfect competition and monopolistic) have different demand and supply conditions. For different market structure, profit-maximizing conditions can change. Like in monopoly firms can change the output levels (supply), charge higher price and increase profits. In case of perfect competition, firms cannot charge the price that they want. Profit maximization in perfect competition will be different from monopoly.
 
The idea is to keep increasing output to the level where MR becomes equal to MC and no more profit can be made by increasing output, as you have correctly noted. Uptil that point however, where MR>MC you should keep producing output and adding to profits. At the point where the last unit of output makes MR=MC profit is maximized and increasing output further will just start eating into profitability
 
BullPow Wrote:
-------------------------------------------------------
> Glad to see someone else also in the
> confusion....as I was confused and still need a
> confirmation that I got it right..
>
> Two concepts:
>
> Total Profit (total profit made) is different
> from Marginal Profit ( incremental profit made
> from selling one more unit)
>
> -Total Profit increases as more and more goods are
> produced ( as long as cost < revenue in other
> words MC < MR )
>
> - Marginal Profit decreases as more and more goods
> are produced ( dimnishing returns)
>
> from above two
>
> => Total Profit increases as Marginal Profit
> decreases.
>
> -If MP goes negative Total Profit starts to
> decline. so Totalk Profit is maximized when MP
> tends to zero.
>
>
> Now MP = MR - MC
> => if MP = 0 => MR = MC
>
> Am I making sense ??


Great explanation. TP is still increasing up to MR=MC. After this point TP will decrease correct? b/c MC>MR
 
You must log in or register to reply here.
Back
Top