Now Accepting Apple Pay

Apple Pay is the easiest and most secure way to pay on StudyMoose in Safari.

Profit maximizing

To determine the profit maximizing point the firm has to consider the demand. We assume a linear inverse demand function of the form

P = a – b. Q

where ‘a’ and ‘b’ are arbitrary positive constants (a > b).

Then Total Revenue

(TR) = P. Q = aQ – bQ2 (1)


Total Profit = Total Revenue – Total Cost = aQ – bQ2 – (285 + 7.


Now, the profit maximizing point is characterized by the equality of marginal revenue and marginal cost (MR = MC). Since

TR = aQ – bQ2, MR = d(TR)/dQ = a – 2bQ

Again since

TC = 285 + 7. 8Q, MC = d(TC)/dQ = 7.8

Therefore, the profit maximizing condition becomes

a – 2bQ = 7.8

solving which we get the profit maximizing output as

Q = (7. 8 – a) / 2b

Putting this in the demand function we obtain the profit maximizing price as

P = a – b (7. 8 – a)/2b

Thus, the profit maximizing point

(P,Q) is {a – b (7. 8 – a)/2b, (7. 8 – a) / 2b}

The shape of the total profit curve is determined by the total revenue curve and the total cost curves since total profit is in essence the difference between these two.

Get quality help now
Verified writer

Proficient in: Business

4.7 (348)

“ Amazing as always, gave her a week to finish a big assignment and came through way ahead of time. ”

+84 relevant experts are online
Hire writer

Profits are zero or negative at zero output since there are no revenues while the firm may have to bear fixed costs ($285 per day in the present context). Then as output rises, revenue outstrips costs per unit and profit starts to rise and reaches a maximum. After this point the gap between revenue and costs declines and total profits begin to fall. In the present case, the total profit curve reaches its maximum for

Q = (7.8 – a) / 2b

Cite this page

Profit maximizing. (2020, Jun 02). Retrieved from

👋 Hi! I’m your smart assistant Amy!

Don’t know where to start? Type your requirements and I’ll connect you to an academic expert within 3 minutes.

get help with your assignment