Total+Revenue+and+Total+Cost+Approach+to+Finding+Equilibrium+Quantity

When it comes to firms deciding what quantity of a good to produce, one must always remember that there is nothing more important then making the most possible capital. It is for this reason that firms use the Total Cost approach to maximizing profit. This approach states that the profit maximizing output for a purely competitive firm is equal to total revenue (TR) - total cost (TC) at the greatest possible value. To see this more clearly, look at the following table. The numbers in bold are those that are at the profit maximizing output.
 * Q || TFC || TVC || TC || TR || +/- ||
 * 1 || 200 || 540 || 740 || 1017 || +277 ||
 * 2 || 200 || 650 || 850 || 1148 || +298 ||
 * **3** || **200** || **780** || **980** || **1279** || **+299** ||
 * 4 || 200 || 930 || 1130 || 1410 || +280 ||

Or if you prefer to have some guy with an accent explain the whole thing to you, watch the following video media type="youtube" key="7lhX78vlHSY" height="344" width="425"

Graphically (if you're too lazy to sit through all 7+ min of the video), here is what it looks like

To learn more, check out the following links: [|http://www.amosweb.com/cgi-bin/awb_nav.pl?s=wpd&c=dsp&k=perfect competition, short-run production analysis] http://en.wikipedia.org/wiki/Profit_maximization http://www.economicexpert.com/a/Profit:maximization.htm

and finally, to test your already tested knowledge, here is a practice problem: Which of the following formulas is the correct one for finding the profit maximizing output for a purely competitive firm? A) MR/MC B) TR-TC C) MR-AR D) TR/TC

hint: the answer is not A, C, or D.