AP Economics

Mr. Bernstein

Module 53: Profit Maximization

November 4, 2014

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AP EconomicsMr. Bernstein

Profit Maximization• The goal of a firm is to maximize Economic Profit• As output (quantity) rise, both TR and TC rise• Through Marginal Analysis, firms seek to find the

level of output where Economic Profit is maximized

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AP EconomicsMr. Bernstein

Marginal Analysis• MR = rTR / rQ and• MC = rTC / rQ• Firms will continue to produce if MR > MC and will

stop producing when MR = MC• Why? Additional dollars outweighs additional costs• This is called the “Optimal Output Rule” for profit

maximization• “Understand this concept, Know this concept, Own

this concept”…Professor Reff!!

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AP EconomicsMr. Bernstein

Profit Maximization Presented Graphically