Determination of optimum output and price level, Managerial Economics

The optimum output and price level is always determined with the concepts of revenue and costs-the difference in joint or independent production will show in the differences in costs and revenues generated in both scenarios. The demand curve to derive total revenue curve and the first differential of this gives us MR. The TVC is used to arrive at MC, as the fixed costs have no role in marginal cost-the fixed costs affect total profits only. Every firm's objective is to maximize profits where profits are defined as (total revenues-total variable costs-total fixed costs). The marginal revenue and marginal cost approach says that, optimum level of output is that level of output at which marginal revenue equals marginal cost and marginal cost cuts marginal revenue from below and the corresponding price would be optimal price.

Posted Date: 7/13/2012 4:01:30 AM | Location : United States







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