– Using graphs, explain that it is possible for a perfectly competitive firm to achieve short-term economic profit (abnormal profit), normal profit (no economic profit), or negative economic profit based on the rule of marginal cost and marginal profit maximization. What is meant by turnover? What is the difference between income and profits? – Use diagrams to explain why the profit-maximization decisions of a monopoly firm lead to allocation inefficiency (loss of welfare) and productive inefficiency. This gives a fixed normal benefit, because in Q1, AR = AC. – Using a diagram, explain the short- and long-term equilibrium decision in terms of production and prices of a profit-maximizing monopolist (minimizing losses) and identify the economic gain (abnormal profit) or losses of the firm. Marginal income (RM) is the additional income generated when a good or service is added. If production is increased, the MR will decrease sharply as the supply of the product increases. In business, we assume that a good with less scarcity will lower its price. MR is calculated according to the formulas Δ TR / Δ Q. – Use a graph to compare and contrast the equilibrium positions of a profit-maximizing monopoly company and a revenue-maximizing monopoly company. Profits are maximized on a production when marginal revenues = marginal costs. Here, too, the marginal gain is zero. – Explain that the main objective of a cartel is to restrict competition between member companies and maximize common profits, as if the companies were collectively a monopoly.

– Examine the role of entry barriers in achieving economic profits (abnormal profit) Profit maximization is not always the goal of a company, sometimes they are concerned with maximizing growth or CSR. This lesson again focuses on monopoly structures and asks whether the operation of a monopoly guarantees that a company will make abnormal profits. It also examines examples of monopolies that do not prioritize profit as the primary objective. Will monopoly companies always make abnormal profits? Are there examples of monopolists prioritizing objectives other than maximizing returns for their shareholders? – Describe economic profit (abnormal profit) as the case where total sales exceed economic costs. In perfect competition, the same rule for maximizing profits always applies. The company maximizes profit where MR = MC (in Q1). For a perfectly competitive company, demand is perfectly elastic, hence MR=AR=D. – Explain the goal of profit maximization, where the difference between total turnover and total cost is maximized, or where marginal revenue equals marginal cost.

(b) Illustration of the level of production at the point of profit maximization By using a simple economic law, the firm can increase its revenues by lowering the price of the good or service, as it earns additional sales revenue that more than offsets the lower selling price. While some IB students confuse the two terms, revenue refers to the funds that go into the business, while profits are calculated based on revenue minus business costs, including implicit costs. – Assess why, despite inefficiencies, a monopoly may be considered desirable for a variety of reasons, including the ability to finance research and development (R&D) from economic benefits, the need to innovate to maintain economic profit (abnormal profit), and the potential for economies of scale. Why do companies maximize total profit and not unit profit? Hello, what is the difference between profit maximization with the TC, TR approach? and MC=MR? 4. Final reflection – takes into account the difference between the turnover and profit of a company at maximum production. If they raised prices beyond the profit-maximizing equilibrium, they would make more profits???? Maximizing Profit for a Monopoly – Review Video Surprisingly, no, revenues are maximized at MR = 0, whereas firms often produce below this level to drive up the price and maximize their profit level, where MC = MR. Profit maximization Example explanation: Profit maximization is assumed to be the business goal of most companies in economics, unless otherwise stated. Let`s say you sell ducklings in rubber bath. Marginal income is the income you earn by selling an extra duck. The marginal cost is the cost you incur in producing an additional duck.

If the marginal turnover is higher than the marginal cost (MR > MC), it means that the sale of an additional duck will bring you a profit of (MR – MC). Therefore, you will want to produce more, to the point where MC = MR. If the marginal cost is greater than the marginal income (MC> MR), it means that the sale of an additional duck results in a loss of profit of (MR – MC). Therefore, you will want to produce less, to the point where MC = MR. Therefore, companies maximize their profits by producing at MC = MR for all market structures. – Explain why a business continues to operate even if it does not make an economic profit (abnormal profit). QN other things that remain the same, discuss how a company can take advantage of different market situations to maximize its profit target through its pricing policy 1. Initial activity – start with the opening activity and allow 5 minutes for discussion. I like to ask students to give me a definition of both terms to start the course. You can also quickly distinguish between the terms total income and income.

(10 minutes) – Draw a graph to illustrate how a company maximizes its profits on third-degree price discrimination and explain why the highest price is set in the market with relatively less elastic demand. Why do profit maximization and sales maximization of production levels differ? Shouldn`t profits also be maximized where sales are highest? – Explain that economic profit (abnormal profit) is profit that goes beyond normal profit (zero economic profit) and that the firm makes a normal profit when economic profit (abnormal profit) is zero. This lesson focuses on alternative definitions of costs and revenues and includes several paper questions of three types. Learning by doing is an effective way for your students to learn primary concepts. Economic profit (sometimes called abnormal profit) and normal profit (zero economic benefit at break-even) – Explain the meaning of loss as a negative economic gain that occurs when total income is less than total cost. – Use a chart to explain why a perfectly competitive company will make normal profits in the long run (no economic profit). – Explain the concept of normal profit (zero economic profit) as the amount of income needed to cover the cost of using one`s own resources (implicit costs, including entrepreneurship), or the amount of income needed to keep the business running only. Since the goal of a business is to minimize costs and maximize profits, what are the clear criteria for maximizing profits? As the question says, this is only a theoretical concept, but in this case, MR and AR would remain unchanged. Indeed, the company is very small compared to the overall market and can increase its production without affecting the market supply and therefore the selling price. Use a chart to explain why a perfectly competitive business will be productive in the long run, but not necessarily in the short term. – comparison and comparison using diagrams of monopolistic competition with perfect competition and monopolistic competition with monopoly with reference to factors such as short-term and long-term markets, efficiency of distribution and production, number of producers, economies of scale, ease of entry and exit, company size and product differentiation.

– The advantages and disadvantages of monopoly compared to perfect competition. – Explain that the behavior of companies in a non-collusive oligopoly is strategic to account for the possible actions of competitors. – Use a diagram to explain why neither allocation efficiency nor production efficiency is achieved by monopoly competitors. Variable total costs: increase in the price of any quantity (c) If a theoretical company produces a perfectly elastic good (PED = infinity), do you explain what will happen to MR and AR if the company increases its production? a) A company wants to increase its turnover and produces an elastic PED product. What course of action should the company take? Short-term requirement: the period during which at least one factor of production is fixed.