What is the profit maximizing price?
Understand the Problem
The question is asking about the concept of profit maximizing price, which is the price at which a firm can achieve the highest possible profit. This typically involves understanding demand, costs, and pricing strategies.
Answer
Price where MR = MC or MR = 0 for monopolies.
The profit-maximizing price is where marginal revenue equals marginal cost, and for monopolies, it equally involves calculating the level where marginal revenue equals zero.
Answer for screen readers
The profit-maximizing price is where marginal revenue equals marginal cost, and for monopolies, it equally involves calculating the level where marginal revenue equals zero.
More Information
For perfectly competitive firms, profit-maximizing occurs where the price is equal to both marginal cost and marginal revenue. For monopolies, it involves analyzing where increasing output no longer increases total revenue.
Tips
A common mistake is not accurately determining MC and MR, which can lead to incorrect pricing decisions.
Sources
- The profit-maximizing price – The Economy 1.0 - CORE Econ - core-econ.org
- Profit maximization (video) - Khan Academy - khanacademy.org
- Profit Maximization: Definition & Formula | Vaia - vaia.com
