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

2701 Views

See similar Economics A Level tutors

Related Economics A Level answers

All answers ▸

How to answer elasticity questions


Comment on whether an increase in the rate of interest would reduce investment.


Explain the likely effects on the circular flow of income of the change in unemployment between 2013 and 2015.


Using the data in Extract A, calculate, to one decimal place, the percentage change in the total net trade balance in goods with the UK’s top five trade partners from February - April 2012 to February–April 2013.


We're here to help

contact us iconContact usWhatsapp logoMessage us on Whatsapptelephone icon+44 (0) 203 773 6020
Facebook logoInstagram logoLinkedIn logo

© MyTutorWeb Ltd 2013–2025

Terms & Conditions|Privacy Policy
Cookie Preferences