Profit Maximisation or Loss Minimisation Determination are described below

1. Total Revenue-Total Cost Approach

a)      If total the Revenue is larger than total Cost, profit can be maximised when the distance or difference between TR and TC is the largest, as given below.

b)      If entire/total cost (TC) is greater than the total revenue (TR), then losses can be decreased when the distance or the difference between TC and TR is minimum, as drawn below.

Marginal Revenue-Marginal Cost Approach is described below

¨      If MR > MC, the firm should raise output to make the additional income.

¨      If MR < MC, the firm should decrease the output to ensure the additional income is not reduced.

¨      Therefore, the level of output which will maximize profits or minimize the losses is where MC = MR and where MC cuts MR from below.

Illustration

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