Explain how a company would set a price if their aim was to profit maximise.

Profit maximising is where a company sets a price and quantity that gets the company the highest profit possible. Profit maximising tends to occur in markets with low competition where the companies have high price setting power (Monopolies, Duopolies and Oligopolies) 

The profit maximising point is found by making Marginal Cost (MC) = Marginal Revenue (MR).

Marginal Cost (MC) = cost to the firm of producing an additional unit of output, relates to variable cost only and not fixed cost

Marginal Revenue (MR) = additional revenue gained from selling one additional unit of output

Any deviation away from this point will mean that the company is no longer profit maximising. 

- Just because the company is profit maximising, it doesnt mean they are actually making profit, they may be minimising their losses. 

AD
Answered by Adam D. Economics tutor

2784 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

Why have Central Banks introduced Quantitative Easing? What other policies have been introduced in the 21st Century?


Discuss the extent to which economic development in the resource-rich economies of sub-Saharan Africa is likely to be promoted by international trade


Explain the effect on economic growth if a government increases income tax (ceteris paribus).


If John’s elasticity of demand for burgers is constantly 0.9, and he buys 4 burgers when the price is £1.50 per burger, how many will he buy when the price is £1.00 per burger


We're here to help

contact us iconContact ustelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2025

Terms & Conditions|Privacy Policy
Cookie Preferences