Chapter 22 Analyzing Profit
II. Demand Determines Marginal Revenue.
III. Maximizing Profit Using Marginal Analysis
IV. Maximizing Profit With Total Revenue & Cost
V. Minimizing a Short- Run Loss, Short-Run Close Down
VI. Economies and Diseconomies of Scale Affect Profit
VII Long-Run Costs
VIII. Predicting profit with break-even analysis
Total GDP has returned to per recession levels but employment might not do so for another five years. Follow the theory in this chapters has allowed companies to maintain profits, but another recession could spell trouble for profit and employment. businessinsider.com 09/27/12
E. The special case of horizontal perfectly elastic demand will be explored in chapter 23.
|Price||Quantity||Total Revenue||Marginal Revenue|
At high prices, demand is inelastic, lowering
price increases total revenue as marginal revenue is positive.
At medium prices, unitary elasticity means no change in total revenue as price is changed.At low prices, demand is elastic, lowering price decreases total revenue as marginal revenue is negative.
Maximizing profit using marginal analysis
A. Selling quantity Q will maximize profit.
B. At quantities below optimum point Q, MR exceeds MC
and increasing quantity sold will increase total profit.
C. At quantities above point Q, MC exceeds MR and an
increase in quantity sold will decrease total profit.
D. Maximum profit results when MR = MC
E. To find total revenue (TR) draw a perpendicular line
from the intersection of MR and MC to the quantity
axis. Then extend the line up to the demand curve
and over to the y-axis. The resulting rectangle is
P x Q which equals total revenue.
F. To find TC draw a line from the intersection of the
perpendicular and ATC to the y-axis. The resulting
rectangle is ATC x Q which is
G. The resulting top rectangle is TR-TC. It is total profit.
IV. Maximizing profit with
total analysis of revenue & cost
Total Revenue = Price x Quantity
Total Costs = Total Fixed Costs + Total Variable Costs
Total Profit = Total Revenue - Total Costs
Maximum profit is where the vertical distance
V. Minimizing a
short- run loss
B. TR2 is paying all variable costs and making some
C. TR3 is not covering all variable costs and not
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US adjusted to maximize profit by becoming a lean production machine.
The Economist Magazine 5/4/13
VI. Economies and
B. Flexible production lines, designed by the
Predicting profit with break-even analysis
A. Darin Jones has decided to open a fully automated car wash with
Linda Smith, a friend from college. Speedy Car Wash would be fully
automated with annual fixed charges for costs such as depreciation
and rent amounting to $100,000. Variable costs such as labor were
expected to be $2.00 per vehicle washed. Price was expected to
average $7.00 per vehicle and they plan to wash 30,000 cars per year.
The expected first-year profit for Speedy Car Wash would be calculated
B. Total Profit = Total Revenue - Total Costs
= P x Q - ( TFC + TVC)
= P x Q - TFC + VC/unit X Q
= ($7/u) X 30,000u - ($100,000 + $2 X 30,000u)
= $210,000 - ($100,000 + $60,000) = $50,000
Amosweb Practice Test by Specific Topic
The Dark Side of
We can be forgiven if we interrogate Jefferson
posthumously about slavery. It is not judging him by today’s standards to
do so. Many people of his own time, taking Jefferson at his word and seeing
him as the embodiment of the country’s highest ideals, appealed to him.
When he evaded and rationalized, his admirers were frustrated and mystified;
it felt like praying to a stone. The Virginia abolitionist Moncure Conway,
noting Jefferson’s enduring reputation as a would-be emancipator, remarked
scornfully, 'Never did a man achieve “Never did a man achieve mo re fame
for what he did not
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