PROFIT is the difference between gross (total) income (TR) and total (gross, total) production costs (TC) for the sales period:

profit= TR-TC. TR= P*Q. If the firm's TR > TC, then it makes a profit. If TC > TR, then the firm incurs losses.

total costs is the cost of all factors of production used by the firm in the production of a given volume of output.

The maximum profit is achieved in two cases:

a) when (TR) > (TC);

b) when marginal revenue (MR) = marginal cost (MC).

Marginal Revenue (MR) is a change in gross income obtained by selling an additional unit of output. For a competitive firm marginal revenue is always equal to the price of the product: MR = P. Marginal profit maximization is the difference between the marginal revenue from the sale of an additional unit of output and the marginal cost: marginal profit= MR - MS.

marginal cost- additional costs leading to an increase in output by one unit of the good. Marginal cost is entirely variable cost because fixed costs do not change with release. For a competitive firm, marginal cost is equal to the market price of the good: MS = R.

The marginal condition for profit maximization is the level of output at which price equals marginal cost.

Having determined the profit maximization limit of the firm, it is necessary to establish an equilibrium output that maximizes profit.

The maximum profitable equilibrium is the position of the firm in which the volume of goods offered is determined by the equality of the market price, marginal cost and marginal income: P = MC = MR.

The maximum profitable equilibrium under perfect competition is illustrated by:

Under perfect competition, the entrepreneur cannot influence market prices, so each additional unit of output produced and sold brings him marginal revenue. MR= P1

Equality of price and marginal revenue under perfect competition

P - price; MR - marginal revenue; Q - the volume of production of goods.

The firm expands production only as long as its marginal cost (MS) below income (MR) otherwise, it ceases to receive economic profit P, i.e. up to MC =MR. As MR=P, then general profit maximization condition can be written: MC=MR=P where MC - marginal cost; MR - marginal income; P - price.

29. Profit maximization in a monopoly.

The behavior of a monopoly firm is determined not only by consumer demand and marginal revenue, but also by production costs. A monopoly firm will increase output until marginal revenue (MR) equals marginal cost (MC): MR = MC not=P

A further increase in output per unit of output will lead to an excess of additional costs MC over additional income MR. If there is a decrease in output by one unit of output in comparison with this level, then for the monopoly firm this will turn into lost income, the extraction of which would be likely from the sale of another additional unit of the good.

A monopolist earns maximum profit when output is such that marginal revenue equals marginal cost and price equals the height of the demand curve at that output level.

This graph shows the short-run average and marginal cost curves of a monopoly firm, as well as the demand for its product and the marginal revenue from the product. The monopoly firm extracts the maximum profit by producing the amount of goods corresponding to the point where MR = MC. She then sets a price, Pm, which is needed to induce buyers to buy QM. Given the price and volume of production, the monopoly firm extracts profit per unit of output (Pm - ACM). The total economic profit is equal to (Pm - ACM) x QM.

If demand and marginal revenue from the good supplied by the monopoly firm fall, then profit making is impossible. If the price corresponding to output at which MR = MC falls below average cost, the monopoly firm will incur losses. (next graph)

When a monopoly firm covers all its costs, but does not make a profit, it is at the level of self-sufficiency.

In the long run, maximizing profit, the monopoly firm increases its operations until it produces the volume of output corresponding to the equality of marginal revenue and long-run marginal cost (MR = = LRMC). If at this price the monopoly firm makes a profit, then free entry to this market for other firms is excluded, since the emergence of new firms leads to an increase in supply, as a result of which prices fall to a level that provides only a normal profit. Profit maximization in the long run.

When a monopoly firm is profitable, it can expect to maximize profits in both the short and long run.

A monopoly firm controls both output and price at the same time. Inflating prices, it reduces the volume of output.

In the long run, the monopoly firm maximizes profit by producing and selling the amount of goods that corresponds to the equality of marginal revenue and marginal cost in the long run.

Ticket 30. Conditions and essence of economic competition.

Economic competition is the rivalry between market participants for the best conditions for the production, purchase and sale of goods.

The form of competition is a system of norms, rules and methods of managing market entities. Distinguish manufacturer competition(sellers) and consumers(buyers).

Producer competition caused by their struggle for the consumer and is carried out with the help of prices and costs. This is the main and predominant type of competition.

Consumer Competition associated with the struggle of individual consumers for access to various goods (or producers for attachment to profitable suppliers of goods sellers).

The economic significance of competition: ensures freedom of entrepreneurship and freedom of choice, contributes to the improvement of product quality, the development of scientific and technological progress, the distribution of resources between industries, the elimination of the diktat of producers in relation to consumers.

Competition conditions:

1) The presence of many equal market entities

2) Economic feature of economic entities

3) Dependence of subjects on market conditions

4) Different product elasticity

Competition features:

1) Accounting for demand for goods by producers

2) Differentiation of the manufacturer's goods

3) Allocation of resources according to demand and rate of return

4) Liquidation of not able-bodied enterprises

5) Promoting the growth of production efficiency and improving product quality

Negative aspects of competition:

1. Formation of monopolies

2. Strengthening social injustice

3. Inflation, resulting in the impoverishment and ruin of individual economic entities

Revenue is zero when the price is $6 because nothing is sold at that price. However, at $5, 1 unit is sold and revenue is $5. An increase in sales from 1 to 2 units increases revenue from $5 to $8, so marginal revenue is $3. When

Algebraically, if the demand for a product is P = 6-Q, then the total income received by the firm is PQ = 6Q - Q2. The average income is PQ/Q =6 - Q, which is the demand curve for the product. Marginal revenue is DR(Q)/AQ, or 6-2Q. This can be verified from the data in Table. 8.1.

When an individual firm encounters a demand expressed as a horizontal line on a graph, as in Fig. 8.2a, then she can sell an additional unit of production without reducing the price. As a result, total income increases by an amount equal to the price (one bushel of wheat sold for $4 yields additional income at $4, i.e. MR = AR(q)/Aq = A(4q)/ Aq = 4). At the same time, the average income received by the firm is also $4, since each bushel of wheat produced will be sold for $4 (AR = Pq/q = P == $4). Therefore, the demand curve for an individual firm in a competitive market is expressed by both average and marginal revenue curves.

Rice. 8.3 shows this graphically. On fig. Figure 8.3a shows the firm's income R(q) as a straight line through the origin. Its slope is the ratio of the change in income to the change in the volume of output, i.e., equal to the marginal income. Similarly, the slope of the line of total costs (TC) is the ratio of changes in production costs to changes in output, i.e., marginal costs.

This condition also follows from the data in Table. 8.2. For all outputs up to 8, marginal revenue is greater than marginal cost. For any output of up to 8 units, the firm should increase output, as profits increase. At an output of 9 units, however, marginal cost becomes higher than marginal revenue, and so the additional output will reduce rather than increase profits. In table. 8.2 does not show the volume of output at which marginal revenue exactly coincides with marginal cost. At the same time, it follows from the given data that when MR(q) > M (q), the volume of output must be increased, and when MR(q)

The expression AR(q)/Aq is the ratio of the change in income to the change in output, or marginal revenue, and AT (q)/Aq is the marginal cost. Thus, we conclude that the profit reaches its maximum when

Curves of marginal income and marginal costs in fig. 8.4 also illustrate this profit maximization rule. The average and marginal revenue curves are drawn as horizontal lines at a price of $40. In this figure, we have drawn an average cost curve AC, an average variable cost curve AV, and a marginal cost curve MC to better show the firm's profits.

Profit peaks at point A, associated with output q = 8 and a price of $40, since at this point marginal revenue equals marginal cost. At lower output (say, q, = 7), marginal revenue is greater than marginal cost, and therefore profits can be further increased by increasing output. The shaded area between qi = 7 and q shows the lost profit associated with production at qi. At higher output (say, qs), marginal cost is higher than marginal revenue. In this case, the reduction in output yields cost savings that exceed marginal revenue. The shaded area between q and q2 == 9 shows the lost profit associated with production at q2.

The application of the rule that marginal revenue must equal marginal cost depends on the manager's ability to estimate marginal cost. To correctly estimate costs, managers should remember three main points.

A careful study of Fig. Figure 8.18 shows that an output tax can have a twofold effect. First, if the tax is less than the firm's marginal revenue, it will maximize its profits by choosing a level of production such that its marginal cost plus tax equals the price of output. The firm's output falls from qi to q2, and the indirect effect of the tax is to shift the short-run supply curve upward (by the amount of the tax). Secondly, if the tax hurts

But AR/AQ is marginal revenue and A /AQ is marginal cost, and so the condition for profit maximization is

Rice. 10.2b shows the corresponding average and marginal revenue curves, as well as average and marginal cost curves. The marginal revenue and marginal cost curves intersect at Q =10. Given the volume of production, the average cost is $15 per unit, the price is $30 per unit, and therefore the average profit is $30 - $15 = $15 per unit. Since 10 units are sold, the profit is $10-$15-$150 (the area of ​​the shaded rectangle).

To do this, we must rewrite the marginal revenue formula as follows

Now, since the goal of the firm is profit maximization, we can equate marginal revenue with marginal cost

On the graph, we shift the marginal cost curve upward by t and find a new intersection point with the marginal revenue curve (Fig. 10.4). Here Qo and Rho are, respectively, the volume of production and the price before taxation, and Qi and PI are the volume of output and the price after the introduction of the tax.

We can answer this question by comparing consumer and producer surpluses in competitive and monopolized markets (we assume that producers in a competitive market and a monopolist have the same cost curves). Rice. 10.7 shows the average and marginal revenue curves and the monopolist's marginal cost curve. To maximize profits, a firm produces the output at which marginal revenue equals marginal cost. The monopoly price and output are denoted as Pm and Qm. In a competitive market, price must equal marginal cost, and the competitive price Pc and quantity Q must be at the intersection of the average income curve (coinciding with the demand curve) and the marginal cost curve. Now let's see how it changes

Marginal revenue curve. When the regulated price should not be higher than P,

The firm's new marginal revenue curve corresponds to its new average revenue curve, and it is shown as a thick line. For outputs up to Qi, marginal revenue is equal to average revenue. For outputs greater than Qi, the new marginal revenue curve is the same as the old one. The firm will produce Qi because it is at this point that the marginal revenue curve crosses the marginal cost curve. You can check that at price PI and quantity Qi, the total net loss from monopoly power is reduced.

First, we need to determine the profit the firm earns when it charges a single price P (Figure 11.2). To figure this out, we can add the profit from each additional unit produced and sold to the total output Q. This extra profit is the marginal revenue minus the marginal cost for each unit of output. On fig. 11.2 this marginal revenue for the first unit is the highest, and the marginal cost is the lowest. For each additional unit, marginal revenue decreases and marginal cost increases. Therefore, the firm produces a total output Q at which marginal revenue equals marginal cost. Producing any quantity greater than Q would raise marginal cost above marginal revenue and thus lower profits. The total profit is the sum of the profit from each sold unit of output and is therefore represented by the shaded area in Fig. 11.2 between the curves of marginal income and marginal

What happens if the firm engages in ideal price diversification Since each customer is assigned exactly the price he is willing to pay, the marginal revenue curve is no longer related to the firm's output decision. Instead, the extra income from each additional unit sold is

Conditions for profit maximization under perfect competition.

ANSWER

According to the traditional theory of the firm and the theory of markets, profit maximization is the main goal of the firm. Therefore, the firm must choose such a volume of supplied products in order to achieve maximum profit for each period of sales.

PROFIT is the difference between gross (total) income (TR) and total (gross, total) production costs (TC) for the sales period:

profit = TR - TS.

Gross income- this is the price (P) of the goods sold, multiplied by the volume of sales (Q).

Since the price is not affected by a competitive firm, it can affect its income only by changing the volume of sales. If the firm's gross income is greater than its total costs, then it makes a profit. If the total cost exceeds the gross income, then the firm incurs losses.

total costs is the cost of all factors of production used by the firm in the production of a given volume of output.

Maximum Profit achieved in two cases:

a) when the gross income (TR) exceeds the total costs (TC) to the greatest extent;

b) when marginal revenue (MR) is equal to marginal cost (MC).

Marginal Revenue (MR) is the change in gross income resulting from the sale of an additional unit of output. For a competitive firm, marginal revenue is always equal to the price of the product:

Marginal profit maximization is the difference between the marginal revenue from the sale of an additional unit of output and the marginal cost:

marginal profit = MR - MC.

marginal cost Additional costs that increase output by one unit of the good. Marginal cost is entirely variables costs because fixed costs do not change with output. For a competitive firm, marginal cost is equal to the market price of the good:

The marginal condition for profit maximization is the level of output at which price equals marginal cost.

Having determined the profit maximization limit of the firm, it is necessary to establish an equilibrium output that maximizes profit.

The most profitable equilibrium This is the position of the firm in which the volume of goods offered is determined by the equality of the market price to marginal cost and marginal revenue:

The most profitable equilibrium under perfect competition is illustrated in Fig. 26.1.

Rice. 26.1. Equilibrium output of a competitive firm

The firm chooses the volume of output that allows it to extract the maximum profit. At the same time, it should be borne in mind that the output that provides the maximum profit does not mean at all that the largest profit is extracted per unit of this product. It follows that it is wrong to use unit profit as a measure of total profit.

In determining the level of output that maximizes profit, it is necessary to compare market prices with average costs.

Average cost (AC)- costs per unit of output; equal to the total cost of producing a given quantity of output divided by the quantity of output produced. Distinguish three type of average costs: average gross (total) costs (AC); average fixed costs (AFC); average variable costs (AVC).

The ratio of market price and average production costs can have several options:

The price is greater than the average cost of production, maximizing profit. In this case, the firm extracts economic profit, i.e., its income exceeds all its costs (Fig. 26.2);

Rice. 26.2. Profit maximization by a competitive firm

The price is equal to the minimum average production costs, which provides the company with self-sufficiency, i.e., the company only covers its costs, which makes it possible for it to receive a normal profit (Fig. 26.3);

Rice. 26.3. Self-sustaining competitive firm

The price is below the minimum possible average cost, that is, the firm does not cover all its costs and incurs losses (Fig. 26.4);

The price falls below the minimum average cost, but exceeds the average minimum variables costs, i.e. the firm is able to minimize its losses (Fig. 26.5); price below average low variables costs, which means the cessation of production, because the company's losses exceed fixed costs (Fig. 26.6).

Rice. 26.4. Competitive firm incurring losses

Rice. 26.5. Minimizing the losses of a competitive firm

Rice. 26.6. Termination of production by a competitive firm

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By selling its products, the company receives income, or revenue.

Income - this is the amount of money received by the company as a result of the production and sale of goods or services for a certain period of time. The amount of income, its change indicates the degree of efficiency of the company.

Distinguish total, average and marginal income.

Total (gross) income (TR ) is the total amount of cash receipts received by the firm as a result of the sale of its products. It is calculated by the formula: TR = P Q, where R- the selling price of a unit of production; Q- the number of units of manufactured and sold products. As you can see, the amount of total income, other things being equal, depends on the volume of output and sales prices.

Average income (AR) is the amount of cash receipts per unit of product sold. It is calculated by the formula: AR = TR / Q = (P  Q) / Q = P . The calculation of average income is usually used when prices change over a period of time or when a firm's product range consists of several or many goods or services.

Marginal Revenue (MR) is the increment in gross income received as a result of the production and sale of an additional unit of output. It is calculated according to the formula MR = TR / Q, where TR is the increase in gross income as a result of the sale of an additional unit of production; Q is the increase in production and sales per unit.

Comparison of marginal revenue and marginal cost for a commodity producer is important in developing his economic policy.

5. Profit of the company: concept and types

The profit of the company largely depends on the amount of income.

Profit is the difference between total revenue and total cost, that is π= TR – TC, where π - profit. The firm can calculate total profit (TR-TC), average profit (AR - ATC) and marginal profit (MR - MC).

Since there are accounting and economic costs, there are accounting and economic profits.

Accounting profit - the difference between total revenue and external (accounting) costs. Recall that the latter include explicit, actual costs: wages, fuel, energy, auxiliary materials, interest on loans, rent, depreciation, etc.

economic profit - this is the part of the company's income that remains after subtracting from the income of all costs: explicit (external) and implicit (internal), that is economic costs. Economic profit is also called net profit .

Economic profit is a certain excess of total income over economic costs. Its presence is of interest to the manufacturer in this particular business area. At the same time, it encourages other firms to enter the field.

The essence of economic profit can be explained by the entrepreneur's innovation, his application of innovative solutions in economic affairs, his willingness to bear full responsibility for the economic decisions made. Therefore, sometimes the profit itself is defined as a payment for risk.

Depending on how revenue and costs are related, the firm's profit can be positive(TR>TS), null(TR=TC) and negative(TR<ТС). Положительная прибыль означает, что фирма добилась самоокупаемости. Все издержки производства стали возмещаться полученным доходом.

Zero (normal) profit is the income that reimburses the minimum costs of the entrepreneurial factor after the entrepreneur has reimbursed all production costs. Earlier it was noted that it is this profit that keeps the entrepreneur in this field of activity. However, at this point there is still no economic profit.

A negative profit means that the firm is making a loss. At the expense of proceeds, it only partially covers the costs of production.

marginal revenue

Marginal revenue (MR) is the revenue generated from the sale of an additional unit of output. Also called additional income, it is the additional income to the total income of the firm received from the production and sale of one additional unit of goods. It makes it possible to judge the efficiency of production, as it shows the change in income as a result of an increase in output and sales of products by an additional unit.

Marginal revenue allows you to assess the possibility of payback for each additional unit of output. In combination with the marginal cost indicator, it serves as a cost benchmark for the possibility and expediency of expanding the volume of production of a given firm.

Marginal revenue is defined as the difference between the total revenue from the sale of n + 1 units of a product and the total revenue from the sale of n products:

MR = TR(n+1) - TRn, or calculated as MR = DTR/DQ,

where DTR - increment of total income; DQ - increment of output by one unit.

Perfect Competition

Gross (total), average and marginal income of the firm

In this chapter, it is assumed that the firm produces any one type of product. At the same time, in its behavior when making certain decisions, the company seeks to maximize its profit. The profit of any firm can be calculated on the basis of two indicators:

• 1) the total income (total revenue) received by the company from the sale of its products,
• 2) the total costs that the firm incurs in the process of producing these products, i.e.

where TR is the total revenue of the firm or total income; TC -- total costs of the firm; P - profit.

In conditions of perfect competition, at any volume of output, products are sold at the same price set by the market. Therefore, the value of the average income of the firm is equal to the price of the product.

For example, if a firm sells 10 units of a product at a price of Rs. per unit, then its total income will be 1000 rubles, and the average income - 100 rubles, i.e. it equals the price. At the same time, the sale of each additional unit of the product means that the total income increases by an amount equal to the price. If the firm sells 11 units, then an additional unit of this product will bring it an additional income of 100 rubles, which is again equal to the unit price of the product. It follows that under conditions of perfect competition, the equality P = AR = MR is maintained.

We illustrate this equality in our example, presenting it in the form of a table 1-5-1.

Table 1-5-1 - Total, average and marginal revenue of the firm.

Table 1-5-1 shows that the growth in sales from 10 units. up to 11 units, and then up to 12 units. at a price of 100 r. per unit does not change the average and marginal income. Both remain equal to 100 rubles, i.e., the price of 1 unit.

Now let's plot the average and marginal revenues of the firm as a graph (Figure 1-5-1). He assumes that the abscissa shows the volume of sales (Q), and the ordinate shows all cost indicators (P, AR, MR). In this case, the average and marginal revenues of the firm, as has already been established, remain constant for any value of Q - 100 rubles. Therefore, the average income curve and the marginal income curve coincide. Both are represented by a single line parallel to the x-axis.

rice. one -5-1

As for the total income curve, it is a ray emanating from the origin of the coordinate system (a line with a constant positive slope - see Fig. 1-5-2). The constant slope is due to the constant price level of the product.

rice. one -5-2

Considering the total, average, and marginal revenues of a firm tells us nothing about the profits that the firm is hoping for. Meanwhile, any firm not only counts on making profit, but also seeks to maximize it. However, it would be wrong to assume that profit maximization is based on the principle "the greater the output, the greater the profit." In order to maximize profits, the firm must produce and sell the optimal volume of products.

There are two approaches to determining the optimal output. Consider them on the example of a conditional firm selling products at a price of 50 rubles. for a unit.

The first approach to determining the firm's optimal output is based on comparing total revenue with total costs. In order to show what this approach consists of, let us first turn to Table. 1-5-2.

Table 1-5-2

At first, costs exceed income (the firm suffers losses). Graphically, this position is expressed in the fact that the TC curve is located above the TR curve. With the release of 4 units of production, the TR and TC curves intersect at point L. This indicates the equality of total costs to total income (the company receives zero profit). The TR curve then passes above the TC curve. In this case, the firm earns a profit that reaches its maximum value at the release of 9 units of output. With a further increase in production, the absolute value of profit gradually decreases, reaching zero at the output of 12 units (the TR and TC curves intersect again). The firm then enters an area of ​​unprofitable activity. Thus, points of critical production volume should be established.

On fig. 1-5-3 are points A (Q = 4) and B (Q = 12). If the firm produces output in the amount that is represented by the values ​​located between these points, it makes a profit. Outside the specified volumes, it suffers losses.

rice. one -5-3

The profit curve (P) reflects the ratio of the TR and TC curves. When a firm is making a loss (profit is negative), the P curve is below the horizontal axis. It crosses this axis at critical output volumes (points A "and B") and passes above it when making a positive profit.

The optimal output is the output at which the firm maximizes profits. In this example, it is 9 units of the product. At Q - 9, the distances between the TR and TC curves, as well as between the P curve and the horizontal axis, are maximum.

Now consider another approach to determining the optimal level of output and the equilibrium state of a competitive firm. It is based on comparing marginal revenue with marginal cost. In order to determine the optimal output, it is not necessary to calculate the amount of profit for all production volumes. It is enough to compare the marginal revenue from the sale of each unit of product with the marginal cost associated with the release of this unit. If marginal revenue (with perfect competition MR = P) exceeds marginal cost, then output should be increased. If marginal cost begins to exceed marginal revenue, then further increase in output should be stopped.

Let us turn again to the example presented in Table. 1-5-2. Should the firm produce the first unit of the product? Of course, since the marginal income from its implementation (50 rubles) exceeds the marginal costs (48 rubles). In the same way, she must produce the second unit (MS = 38 rubles). In the same way, the marginal revenue and marginal cost associated with the production of each subsequent unit are commensurate. We are convinced that the ninth unit of the product should also be produced. But already the costs associated with the release of the tenth unit (MS = 54 rubles) exceed the marginal revenue. Therefore, by releasing the tenth unit, the firm will reduce the amount of profit received, which is the sum of the excesses of marginal revenue over marginal cost from the release of each previous unit of the product. From this we can conclude that the optimal output of this firm is 9 units. With this output, marginal revenue is equal to marginal cost.

The behavior of the firm at various ratios of marginal revenue and marginal costs is presented in Table. 1-5-3.

Table 1-5-3

Thus, the rule for determining the optimal output of a firm, when the price of production is equal to the marginal product, is expressed by the equality

Since in conditions of perfect competition the price is equal to the marginal revenue (P = MR), then

P = MS, i.e.

equality of the price of production to marginal cost is a condition for the equilibrium of a competitive firm.

Determination of the optimal level of output by the firm on the basis of the second approach can also be done graphically (Fig. 1-5-4).

rice. one -5-4

Conclusion

Gross income (total) (TR)-- the product of the price of goods for the corresponding number of products sold.

Under perfect competition, the firm sells additional units of output at a constant price, so the graph of gross income has the form of a straight ascending line (in this case, gross income is directly proportional to the volume of products sold).

In imperfect competition, a firm must lower its price in order to increase sales. In this case, the gross income on the elastic segment of demand increases, reaching a maximum, and then - on the inelastic one - decreases.

Marginal income (MR) -- the amount by which gross income changes as a result of an increase in the number of products sold by one unit.

In a perfectly competitive market with perfectly elastic demand, marginal revenue is equal to average revenue.

Imperfect competition creates a downward-sloping demand curve for the firm. In such a market, marginal revenue is less than both average revenue and price.

Average income (AR) -- the average revenue from the sale of a unit of goods. It is calculated by dividing the total income by the volume of products sold.