Profit maximization is a short run or lung run process according to which the firm decides the price, input and output which finally determines the maximum revenue they have generated. Profit maximization theory has two rules, one is MR=MC and second is MC cuts MR from below. Maximum profit is the profit above average cost of production which is the amount left with the company after payment of total cost that includes variable and fixed cost.
Profit maximisation is a part of economics which requires the knowledge of the theory, practical understanding of the subject and its application in the firm. This result in making the assignment related to profit maximisation complicated to comprehend. Due to complication with the understanding of this theory, the students search for online experts who could provide them good Profit maximization project help.
Profit maximisation of a firm can be expressed as Maximise P (q)
Where P (q) = R (q) – C (q)
P (q) is profit, R (q) is revenue and C (q) is cost and Q is the units sold in the market.
The theory of profit maximization can be divided in two parts:
Perfect competition market: Perfect competition is the market where firms are the price taker and is free entry and exit of the firm. So, MR (marginal revenue) curve coincides with AR (average revenue) curve. The MR and AR curve is horizontal and parallel to x-axis. The profit maximization condition is MR=AR=MC, where MC cuts the MR curve from below. The point B is the point where firm maximises it profit and the firm should not produce beyond the point Q, as there would be no payoff.
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Monopoly market: Monopoly market is the market with one seller and numerous buyers. In this, the sellers are the price setter and MR and AR curve do not coincides. The demand curve in monopoly market is downward sloping. The profit maximization situation in this type of market is also MC=MR< AR and MC cuts the MR curve from below. The firm should produce at Q, where the MR=MC. If they produce more than Q, then the MC will be more than MR, and each output produced will decrease the revenue of the firm. At point Q, the firm is at equilibrium only on the condition if the firm do not change the price and output.
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