Case in Which Maximizing Revenue Is Equivalent
In some cases a firm's demand and cost conditions are such that marginal profits are greater than zero for all levels of production up to a certain maximum. In this case marginal profit plunges to zero immediately after that maximum is reached; hence the Mπ = 0 rule implies that output should be produced at the maximum level, which also happens to be the level that maximizes revenue. In other words the profit maximizing quantity and price can be determined by setting marginal revenue equal to zero, which occurs at the maximal level of output. Marginal revenue equals zero when the total revenue curve has reached its maximum value. An example would be a scheduled airline flight. The marginal costs of flying one more passenger on the flight are negligible until all the seats are filled. The airline would maximize profit by filling all the seats. The airline would determine the conditions by maximizing revenues.
Read more about this topic: Profit Maximization
Famous quotes containing the words case, revenue and/or equivalent:
“Wealth is not without its advantages and the case to the contrary, although it has often been made, has never proved widely persuasive.”
—John Kenneth Galbraith (b. 1908)
“Happy are those who find wisdom, and those who get understanding, for her income is better than silver, and her revenue better than gold. She is more precious than jewels, and nothing you desire can compare with her. Long life is in her right hand; in her left hand are riches and honor. Her ways are ways of pleasantness, and all her paths are peace. She is a tree of life to those who lay hold of her; those who hold her fast are called happy.”
—Bible: Hebrew, Proverbs 3:13-18.
“For some men the power to destroy life becomes the equivalent to the female power to create life.”
—Myriam Miedzian, U.S. author. Boys Will Be Boys, ch. 4 (1991)