Show the changes in fixed costs and profit maximisation, Managerial Economics

Q. Show the Changes in fixed costs and profit maximisation?

A firm maximises profit by operating where marginal revenue equals marginal costs. A change in fixed costs hasn't any effect on the profit maximising output or price. Firm simply treats short term fixed costs as sunk costs and continues to operate as before. This can be confirmed graphically. Employing the diagram, explaining the total cost total revenue method, firm maximises profits at the point where slope of the total cost line and total revenue line are equal. A change in total cost would cause total cost curve to shift up by the amount of change. There would be no effect on the total revenue curve or the shape of the total cost curve. Therefore the profit maximising point would remain the same. This point can also be explained using the figure for the marginal revenue marginal cost method. A change in fixed cost will have no effect on the shape or position of these curves.

Posted Date: 8/12/2013 2:44:43 AM | Location : United States

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