What is profit-maximizing price?
Understand the Problem
The question is asking about the concept of profit-maximizing price in economics, which refers to the price level that produces the highest possible profit for a firm. This typically involves analyzing cost structures and demand curves.
Answer
The price where marginal revenue equals marginal cost.
The profit-maximizing price is the price at which a firm's marginal revenue equals its marginal cost.
Answer for screen readers
The profit-maximizing price is the price at which a firm's marginal revenue equals its marginal cost.
More Information
In practical terms, firms consider their overall costs and expected revenues at various prices to determine the optimal price point where they can maximize their profits.
Tips
A common mistake is equating profit maximization directly with revenue maximization; the former considers costs while the latter does not.
Sources
- Profit Maximization Definition, Formula & Theory - Lesson - Study.com - study.com
- Profit maximization (video) - Khan Academy - khanacademy.org
- The profit-maximizing price – The Economy 1.0 - CORE Econ - core-econ.org
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