Given the profit function π = PxQ - C(Q), maximize profits and explain its relationship with...

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Given the profit function π = PxQ - C(Q), maximize profits and explain its relationship with...

Given the profit function π = PxQ - C(Q), maximize profits and explain its relationship with the figure below. Are these models useful to managers, explain?

business economics

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Answer 1

Answer #1

In the figure

MTB is marginal total benefit curve ,

At profit maximization, net benefit = total benefit - total cost

Is miximized.

Thus FOC: MB = MC

As MB is slope of MTB curve , MC is slope of total cost curve, hence at equilibrium the two curve has same slope

& The difference between MTB & TC is maximized.

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Answer 2

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