Title

(3) Evaluating Profitability Using the Average/Marginal Approach

Topic Category

Perfect Competition

Publication Date

2011

Keywords

Perfect Competition, Total Profits, Average Profits, Profit-Volume Analysis

Abstract

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.

Run Time

4:58

Primary Discipline

Microeconomics

Skills Delivered

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.

Rigor Level

2000

Prerequisites

Overview of Market Structure, Perfect Competition Characteristics and Short Run Cost Videos

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