Transcription of Chapter Nine: Profit Maximization
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Chapter Nine: Profit Maximization
Chapter 9 lecture Notes 1 Economics 352: Intermediate Microeconomics Notes and Sample Questions Chapter 9: Profit Maximization Profit Maximization The basic assumption here is that firms are Profit maximizing. Profit is defined as: Profit = Revenue Costs (q) = R(q) C(q) )q(Cq)q(p(q) = To maximize profits, take the derivative of the Profit function with respect to q and set this equal to zero. This will give the quantity (q) that maximizes profits, assuming of course that the firm has already taken steps to minimize costs.
Chapter 9 Lecture Notes 6 The demand curve has constant slope, so the second term on the right hand side is constant. The ratio of p to q is large at the top of the demand curve, making demand near ... So, if the price elasticity of demand is –2, the profit maximizing price is: 2 MC 1 2 MC 1 2 2
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