Chapter 7: Profit, Loss,: Profit Maximization

Is the process by which a firms determines the price and

output level that returns the great profit.

Profit = total revenue (TR) – total cost (TC)

Marginal Revenue – it is a parallel concept.

MR = MC
Total Revenue – is price times the total quantity of output
sold.
TR = (P)(TQ)
 Total Profit = output (Price – ATC)

OUTPU PRICE TR MR TC ATC MC TP

T
1 500 1000
2 500 1500
3 500 1800
4 500 2000
5 500 2300
6 500 2850
7 500 3710
Efficiency
An important economic concept that is part of economics.

Economics
Is the efficient use of scarce means of production towards
the satisfaction of human wants.

Perfect Competition
A market structure with many well – informed sellers and
buyers of an identical product and no barriers to entering or
leaving the market.
 Characteristics of Perfect Competition
1. Large number of small firm – it is composed of many firms
and buyers that is a large number of independently – acting
firms and buyers.
2. Homogenous or Identical Product – the products offered by
the competing firms are identical not only in physical
attributes but also regarded as identical by the buyers.
3. Very easy entry and exit – it means that there are no barriers
to entry of new sellers or to exit of existing sellers.
Lesson Assessment
Complete the table below.
OUTPUT PRICE TR (P) MR ( P ) TC ( P ) ATC ( P ) MC ( P ) TP ( P )
(Q) (P)

1 16 20
2 15 30
3 14 36
4 13 42
5 12 50
6 11 63
7 10 84