Profit Maximization and Deriving Marginal Revenue Curve

Profit maximizing quantity

π (Q) = TR(Q) − TC(Q) .............(1)

(Economic profit) = (sales revenue) – (economic costs)

(Accounting profit) = (sales revenue) – (accounting costs)

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Deriving Marginal Revenue Curve:

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Amoroso-Robinson Formula:

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Since demand curve is downward sloping, ε D is always positive. So MR is lower than AR (average revenue, i.e. Price). MR < P .

Ifε D = ∞(horizontal demand, infinitely elastic demand, or Q = 0), MR = AR(= P) .

Marginal Revenue, Price Elasticity and Total Revenue:

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Profit Maximization: Revisited

a) Oversimplification problem
b) Any alternative ways?
c) Asymmetric Information

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