(3) Evaluating Profitability Using the Average/Marginal Approach
Perfect Competition, Total Profits, Average Profits, Profit-Volume Analysis
This shows how a graph of revenues and costs can be used to conduct profit-volume analysis. The average/marginal approach is used. The profit maximizing output level is identified, and the associated total revenue and total cost measures are shown. This leads to an evaluation of profitability at the profit maximizing output level. Three outcomes are reviewed: 1) the firm making money, 2) the firm losing money, and 3) the firm breaking even by earning zero profits.
Crane, Steven E., "(3) Evaluating Profitability Using the Average/Marginal Approach" (2011). Principles of Microeconomics. 40.
Ability to use average/marginal approach graphs of revenue and cost functions for the perfectly competitive firm to determine the profit situation at the profit maximizing output level.
Overview of Market Structure, Perfect Competition Characteristics and Short Run Cost Videos