Determining the Profit-Maximizing Price from the Demand Curve
Once a firm has identified its profit-maximizing quantity of output (Q*), for example by finding where its marginal revenue and marginal cost curves intersect, it must then determine the optimal price. To maximize profit, the firm should set the highest possible price for that quantity, which is the price given by the firm's demand curve at Q*.
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CORE Econ
Economics
Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.7 The firm and its customers - The Economy 2.0 Microeconomics @ CORE Econ
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Determining the Profit-Maximizing Price from the Demand Curve
Learn After
A company analyzes its cost and revenue data and determines that the quantity of output where its marginal revenue equals its marginal cost is 2,000 units. At this specific quantity, the company's marginal cost is $40 per unit. According to the company's market demand curve, the highest price consumers are willing to pay when 2,000 units are available is $75 per unit. To maximize its profit, what price should the company set for its product?
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A firm with market power is analyzing its pricing strategy using the graph below, which shows its demand (D), marginal revenue (MR), and marginal cost (MC) curves. To maximize its profit, what price should the firm charge for its product?
[Image of a standard monopoly graph. The vertical axis is Price/Cost, the horizontal is Quantity. The D curve is downward sloping. The MR curve is also downward sloping but steeper than D. The MC curve is upward sloping. The MR and MC curves intersect at a quantity of 100 units and a cost of $12. A vertical line from the quantity of 100 extends up to the D curve, which corresponds to a price of $20. The D and MC curves intersect at a quantity of 150 units and a price of $16.]
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