Firms’ Decisions. The goal of profit maximization Two definitions of profit The firm’s constraints The total revenue and total cost approach The marginal revenue and marginal cost approach short-run: shut down rule Long-run: exit rule. The Goal Of Profit Maximization.
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Change in total cost from producing one more unit of output
OutputFigure 2a: Profit Maximization
Profit at 7 Units
Profit at 5 Units
Profit at 3 Units
DTR from producing 2nd unit
DTR from producing 1st unit
Total Fixed Cost
–200Figure 2b: Profit Maximization
OutputFigure 3: Two Points of Intersection
Q*Figure 4: Loss Minimization
OutputFigure 4: Loss Minimization
OutputFigure 5: Shut Down
Loss at Q*