Chapter 9: Limited Decision-Making in Perfect Competition
The market-determined price for your good is $80. Therefore, your total revenue equals
Your total cost function is
Therefore, your total profit equation is
In order to determine the profit maximizing quantity, you take the following steps:
1. Take the derivative of total profit with respect to quantity.
2. Set the derivative equal to zero and solve for q.
3. Divide both sides of the equation by 0.1.
Thus, 700 units of the good is the profit-maximizing quantity.
4. To determine total profit, simply substitute 700 for q in the total profit equation.
Total profit equals $12,000.
Maximizing profit as a marginal decision To maximize profit by using marginal revenue and marginal cost, you focus on the contribution one additional unit of output makes to your revenue relative to its contribution to your cost.
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