The company wishes to maximize the total revenues. Can you comment without doing any calculations whether...

The company wishes to maximize the total revenues. Can you comment without doing any calculations whether the price would need to be higher or lower than the profit-maximizing price? Explain your answer (Make sure not to use any calculations/numbers to explain your answer).

Expert Solution

A sales maximising firm will need to lower the its price as compared to profit maximising price.

In order to understand ,it will be necessary to know, what is profit maximising price.

PROFIT MAXIMISING PRICE---- It is also called equilibrium price .It is a price which gives maximum profits to the firm.

It occurs when a firm produces as much quantity of output where his marginal cost ( MC ) is equal to marginal revenue ( MR) i.e MR= MC.The price corresponding to this quantity is the profit maximising price.

SALES MAXIMISING PRICE -----It is a price ,the firm charges when it aims at maximising sales or revenue.It occurs when its marginal revenue is zero ,i.e MR = 0

The sales maximising price will be lower than profit maximising price

We can show it more clearly with the help of a diagram(given as above)

Rahul Sunny answered 7 months ago

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