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Profit Maximizing Point

Put simply:

The profit maximizing point for any firm is where MR = MC.

This stays consistent among all market types!

Understanding the curves

Any given firm will have a MC curve looking like so:

What this means is that as the company increases the number of units produced, the additional (a.k.a. marginal) cost of producing each additional unit at first gets cheaper and cheaper...

...and then starts to grow at an accelerated pace.

In other words, after a certain point, producing each additional unit of a good gets more and more expensive.

While the MC curve stays consistent among firms, the MR curve can vary dependent on the market structure a firm is in.

For the sake of this example, let's assume that the MR of producing each additional unit of a good is constant $5.

What this means is that as the company increases the number of units produced, the additional (a.k.a. marginal) revenue gained by producing each unit stays constant at $5.

Identifying MR = MC

If this firm wanted to maximize their profit, they'd want to set their quantity to where MR = MC...

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