Question

How do you determine Firm's maximum profit if given quantities of units sold, price per unit sold, marginal revenue of unit sold, and marginal cost?

Answer 1

Profit Maximization
Profits are defined as the difference between total revenue and total cots. ( Profits = Total revenue - Total costs)
For any firm to achieve maximum profit has to identify and satisfy two conditions.
1) Its Marginal revenue must equal marginal cost at the output level.

For if MC is less than MR, there is scope for increasing output and raising revenue. There is no point at stopping production at this point.
For it MC is more than MR, this indicates that costs are rising in comparison to per unit revenue.
Hence, it is optimum to produce a quantity where MR= MC
Although this is a necessary condition but not a sufficient one.

2) Marginal cost should be rising after the intersection point MR = MC.
This is because there could be several points where MR = MC, but with excess capacity meaning there could be scope of increasing revenue without raising costs. Hence, at the point of maximum profit not only does MR = MC but marginal cost should be rising after this point such that any increase in production after could raise costs thereby affecting profits.