Profit Maximization Exercise - tutor2u
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The diagram below shows the cost and revenue curves of a firm facing a downward sloping demand curve.
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1. Label the curves shown in the diagram above
2. Find the profit maximising price and output
3. What is the approximate average total cost of producing the profit maximising output?
4. What is the profit per unit at this output?
5. Calculate the total profit that the business makes at this price and output
Changes in costs and changes in the profit maximizing output
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In the example above the business has experienced higher marginal and average total costs – find the new profit maximising output and show the new level of profits
A business that is making losses
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Find the profit maximising output level for this business which has costs and revenues as shown in the diagram
Your notes
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In the example above we see the effects of a fall in the fixed costs of production
Your notes
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1. Label the curves shown in the diagram above
2. Calculate the approximate level of profits at the profit maximising level of output
3. Calculate the approximate level of profits if the business seeks to produce an output and sell at a price that maximises revenue rather than profit
4. Which of the two outputs from questions 2 and 3 above gives the highest level of consumer surplus?
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