Demonstrating Equivalent Profit Maximization Methods

Verifying a Profit Maximization Recommendation

A firm's total revenue function is R(Q) = 15Q - Q², and its total cost function is C(Q) = 2Q. Which of the following equations, when solved for Q, will yield the profit-maximizing output level?

A firm is trying to find its profit-maximizing output level. It correctly calculates that at an output of Q=50, the slope of its total revenue curve is $7 and the slope of its total cost curve is also $7. Based on this information, the firm can conclude that the slope of its profit function at Q=50 is zero.

The Mathematical Equivalence of Profit Maximization Rules

A firm's total revenue is given by the function R(Q) and its total cost by the function C(Q). The firm's profit is given by Π(Q) = R(Q) - C(Q). To find the profit-maximizing level of output, a manager can use two equivalent approaches: setting the derivative of the profit function to zero (Π'(Q) = 0) or setting marginal revenue equal to marginal cost (MR = MC). Match each mathematical expression with its correct economic term.

Applying Equivalent Profit Maximization Methods

Reconciling Profit Maximization Approaches

Diagnosing an Error in Profit Maximization