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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. 

Adam D. GCSE Maths tutor, A Level Economics tutor, A Level Maths tutor

11 months ago

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