Profit Maximization for a Competitive Firm

http://www.whitenova.com/thinkEconomics/profit.html

Hey guys, here's another nice applet to use for your understanding of profit maximization by a competitive firm.

Again, here, if you scroll down you will find the section of the "Interactive Graph". There you can see the usual cost curves of a firm, i.e. the Marginal Cost (MC), the Average (Total) Cost (ATC) and the Average Variable Cost (AVC).

First you select any price on the Y-axis. This is the price that is prevalent in the market. Remember, the firm is a price taker, therefore at the prevailing market price, it's demand curve is a horizontal line. Next, once you choose the price, you are asked to choose the profit maximizing quantity. Where are the profits maximized according to what we said in class? What is the universal profit maximizing condition?

Once you find the correct profit maximizing quantity, click on it. If your answer is correct, the applet will tell you so. Then, a couple of colored rectangles will appear, and if you scroll over them, the relevant areas on the graph will be highlighted.

The areas are:
TR = Total Revenue
TC = Total Cost
Greek Capital Pi = Profit (or Loss)
TVC = Total Variable Cost
TFC = Total Fixed Cost

You can perform the same analysis for different prices too! Let me know if you have any questions!