Revenue and profit maximization, Microeconomics

Revenue and Profit Maximization:

Whenever a good is produced, the individual firm which has produced incurs costs which are are referred to as private costs and the society in which the good has been produced also incurs costs which are known as social costs. Private costs include payments firms make for hiring or purchasing factors of production as well as cost of resources owned and used by the firms whereas social cost of production refers to the cost incurred by a society when its economic resources are used to produce a given commodity.

In the short run production period the firm incurs fixed costs on fixed inputs and variable costs on the variable inputs. In the long because all inputs are variable the firm incurs only variable costs. In the long run where the firm can vary all inputs, there some advantages and disadvantages that accrue to the firm when it expands. The advantages of expansion are called economies of scales while he disadvantages are called diseconomies of scale.

Revenue is what the firm receives when it sells its output. The excess revenue over the firms’s cost of production is profit.

Posted Date: 1/2/2013 11:36:08 PM | Location : United States

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