explain the conditionleading profit maximisation by a producer . use total revenue and total cost approach.
Dear Student,
A profit maximising producer as we know would always like to produce at a point where the difference between Total Revenue and Total Cost is the maximum. This can be shown using the TR-TC approach, with the help of a diagram,
In the figure given above, TR is the Total Revenue Curve, while TC is the Total Cost Curve. Points ‘K’ and ‘M’ are called break-even points, where TR = TC, i.e. at these points, profits are zero. As can be seen in the figure above, the vertical distance between TR and TC is maximum at output level of OQx. Therefore, OQx is the level of output that will be produced by a profit maximising producer. Increasing output beyond OQx level will reduce profit. Hence, point ‘E’ is the producer’s equilibrium, where the producer has no incentive to deviate.
A profit maximising producer as we know would always like to produce at a point where the difference between Total Revenue and Total Cost is the maximum. This can be shown using the TR-TC approach, with the help of a diagram,
In the figure given above, TR is the Total Revenue Curve, while TC is the Total Cost Curve. Points ‘K’ and ‘M’ are called break-even points, where TR = TC, i.e. at these points, profits are zero. As can be seen in the figure above, the vertical distance between TR and TC is maximum at output level of OQx. Therefore, OQx is the level of output that will be produced by a profit maximising producer. Increasing output beyond OQx level will reduce profit. Hence, point ‘E’ is the producer’s equilibrium, where the producer has no incentive to deviate.