# MARGINAL REVENUE, MARGINAL COST, AND PROFIT MAXIMIZATION

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MARGINAL REVENUE, MARGINAL COST, AND PROFIT MAXIMIZATION
By: Netti Tinaprilla

● profit Difference between total revenue and total cost.
π(q) = R(q) − C(q) ● marginal revenue Change in revenue resulting from a one-unit increase in output. Profit Maximization in the Short Run A firm chooses output q*, so that profit, the difference AB between revenue R and cost C, is maximized. At that output, marginal revenue (the slope of the revenue curve) is equal to marginal cost (the slope of the cost curve). π(q) = R(q) − C(q) Δπ/Δq = ΔR/Δq − ΔC/Δq = 0 MR(q) = MC(q)

Demand and Marginal Revenue for a Competitive Firm
Demand Curve Faced by a Competitive Firm A competitive firm supplies only a small portion of the total output of all the firms in an industry. Therefore, the firm takes the market price of the product as given, choosing its output on the assumption that the price will be unaffected by the output choice. In (a) the demand curve facing the firm is perfectly elastic, even though the market demand curve in (b) is downward sloping.

MC(q) = MR = P Demand and Marginal Revenue for a Competitive Firm
The demand d curve facing an individual firm in a competitive market is both its average revenue curve and its marginal revenue curve. Along this demand curve, marginal revenue, average revenue, and price are all equal. Profit Maximization by a Competitive Firm MC(q) = MR = P

CHOOSING OUTPUT IN THE SHORT RUN
Short-Run Profit Maximization by a Competitive Firm Marginal revenue equals marginal cost at a point at which the marginal cost curve is rising. Output Rule: If a firm is producing any output, it should produce at the level at which marginal revenue equals marginal cost.

The Short-Run Profit of a Competitive Firm
A Competitive Firm Making a Positive Profit In the short run, the competitive firm maximizes its profit by choosing an output q* at which its marginal cost MC is equal to the price P (or marginal revenue MR) of its product. The profit of the firm is measured by the rectangle ABCD. Any change in output, whether lower at q1 or higher at q2, will lead to lower profit.

The Short-Run Profit of a Competitive Firm
A Competitive Firm Incurring Losses A competitive firm should shut down if price is below AVC. The firm may produce in the short run if price is greater than average variable cost. Shut-Down Rule: The firm should shut down if the price of the product is less than the average variable cost of production at the profit-maximizing output.

Maksimisasi Produksi yang Dibatasi
Misalkan, maksimisasi output : Q = f (X,Y) ……………….…….…pers 1 dengan dibatasi biaya : E* = Px . X + Py . Y……….………pers 2 0 = E* - (Px . X + Py . Y)….……...pers 3

Fungsi Lagrangian untuk maksimisasi fungsi produksi yang dibatasi anggaran adalah:
pers 4 Maksimisasi dilakukan dengan menderivasi parsial dari fungsi Lagrangian tersebut menjadi: pers 5 pers 6 pers 7

PMx – λPx = 0  PMx = λPx  λ = PMx/Px
PMy - λPy = 0  PMy = λPy  λ = PMy/Py Maka : PMx/Px = Pmy/Py PMx/Pmy = Px/Py

Minimisasi Biaya yang Dibatasi
Misalnya terdapat masalah meminimumkan biaya untuk memproduksi output dalam jumlah tertentu. Fungsi Lagrangian untuk masalah ini: Derivasi parsial:

Dari hasil operasi lanjutan dari derivasi parsial masing-masing kondisi, dapat dirumuskan kondisi optimal untuk input adalah pada saat:

Struktur Pasar Pasar Permintaan Penawaran
Hukum permintaan dan penawaran Struktur pasar : persaingan sempurna dan tidak sempurna Karakteristik tingkat persaingan

MARKET DEMAND Substitution Effect
Summing to Obtain a Market Demand Curve The market demand curve is obtained by summing our three consumers’ demand curves DA, DB, and DC. At each price, the quantity of coffee demanded by the market is the sum of the quantities demanded by each consumer. At a price of \$4, for example, the quantity demanded by the market (11 units) is the sum of the quantity demanded by A (no units), B (4 units), and C (7 units).

MARKET DEMAND Elasticity of Demand Inelastic Demand Elastic Demand
Denoting the quantity of a good by Q and its price by P, the price elasticity of demand is (4.1) Inelastic Demand When demand is inelastic, the quantity demanded is relatively unresponsive to changes in price. As a result, total expenditure on the product increases when the price increases. Elastic Demand When demand is elastic, total expenditure on the product decreases as the price goes up.

MARKET DEMAND Elasticity of Demand Isoelastic Demand
isoelastic demand curve Demand curve with a constant price elasticity. Unit-Elastic Demand Curve When the price elasticity of demand is −1.0 at every price, the total expenditure is constant along the demand curve D.

CONSUMER SURPLUS Consumer Surplus and Demand
Consumer Surplus Generalized For the market as a whole, consumer surplus is measured by the area under the demand curve and above the line representing the purchase price of the good. Here, the consumer surplus is given by the yellow-shaded triangle and is equal to 1/2 × (\$20 − \$14) × 6500 = \$19,500.

Review of Consumer and Producer Surplus
EVALUATING THE GAINS AND LOSSES FROM GOVERNMENT POLICIES— CONSUMER AND PRODUCER SURPLUS Review of Consumer and Producer Surplus Figure 9.1 Consumer and Producer Surplus Consumer A would pay \$10 for a good whose market price is \$5 and therefore enjoys a benefit of \$5. Consumer B enjoys a benefit of \$2, and Consumer C, who values the good at exactly the market price, enjoys no benefit. Consumer surplus, which measures the total benefit to all consumers, is the yellow-shaded area between the demand curve and the market price.

Review of Consumer and Producer Surplus
EVALUATING THE GAINS AND LOSSES FROM GOVERNMENT POLICIES— CONSUMER AND PRODUCER SURPLUS Review of Consumer and Producer Surplus Consumer and Producer Surplus (continued) Producer surplus measures the total profits of producers, plus rents to factor inputs. It is the benefit that lower-cost producers enjoy by selling at the market price, shown by the green-shaded area between the supply curve and the market price. Together, consumer and producer surplus measure the welfare benefit of a competitive market.

THE MARKET MECHANISM Supply and Demand The market clears at price P0 and quantity Q0. At the higher price P1, a surplus develops, so price falls. At the lower price P2, there is a shortage, so price is bid up. ● surplus Situation in which the quantity supplied exceeds the quantity demanded. ● shortage Situation in which the quantity demanded exceeds the quantity supplied.

CHANGES IN MARKET EQUILIBRIUM
New Equilibrium Following Shift in Supply When the supply curve shifts to the right, the market clears at a lower price P3 and a larger quantity Q3.

CHANGES IN MARKET EQUILIBRIUM
New Equilibrium Following Shift in Demand When the demand curve shifts to the right, the market clears at a higher price P3 and a larger quantity Q3.

CHANGES IN MARKET EQUILIBRIUM
New Equilibrium Following Shifts in Supply and Demand Supply and demand curves shift over time as market conditions change. In this example, rightward shifts of the supply and demand curves lead to a slightly higher price and a much larger quantity. In general, changes in price and quantity depend on the amount by which each curve shifts and the shape of each curve.

ELASTICITIES OF SUPPLY AND DEMAND
elasticity Percentage change in one variable resulting from a 1-percent increase in another. Price Elasticity of Demand price elasticity of demand Percentage change in quantity demanded of a good resulting from a 1-percent increase in its price. (2.1)

ELASTICITIES OF SUPPLY AND DEMAND
Linear Demand Curve linear demand curve Demand curve that is a straight line. Linear Demand Curve The price elasticity of demand depends not only on the slope of the demand curve but also on the price and quantity. The elasticity, therefore, varies along the curve as price and quantity change. Slope is constant for this linear demand curve. Near the top, because price is high and quantity is small, the elasticity is large in magnitude. The elasticity becomes smaller as we move down the curve. 3 2

ELASTICITIES OF SUPPLY AND DEMAND
Linear Demand Curve (a) Infinitely Elastic Demand For a horizontal demand curve, ΔQ/ΔP is infinite. Because a tiny change in price leads to an enormous change in demand, the elasticity of demand is infinite. infinitely elastic demand Principle that consumers will buy as much of a good as they can get at a single price, but for any higher price the quantity demanded drops to zero, while for any lower price the quantity demanded increases without limit.

ELASTICITIES OF SUPPLY AND DEMAND
Linear Demand Curve (b) Completely Inelastic Demand For a vertical demand curve, ΔQ/ΔP is zero. Because the quantity demanded is the same no matter what the price, the elasticity of demand is zero. completely inelastic demand Principle that consumers will buy a fixed quantity of a good regardless of its price.

ELASTICITIES OF SUPPLY AND DEMAND
Other Demand Elasticities income elasticity of demand Percentage change in the quantity demanded resulting from a 1-percent increase in income. (2.2) cross-price elasticity of demand Percentage change in the quantity demanded of one good resulting from a 1-percent increase in the price of another. (2.3) Elasticities of Supply price elasticity of supply Percentage change in quantity supplied resulting from a 1-percent increase in price.

ELASTICITIES OF SUPPLY AND DEMAND
Point versus Arc Elasticities point elasticity of demand Price elasticity at a particular point on the demand curve. Arc Elasticity of Demand arc elasticity of demand Price elasticity calculated over a range of prices. (2.4)

EFFECTS OF GOVERNMENT INTERVENTION— PRICE CONTROLS
Effects of Price Controls Without price controls, the market clears at the equilibrium price and quantity P0 and Q0. If price is regulated to be no higher than Pmax, the quantity supplied falls to Q1, the quantity demanded increases to Q2, and a shortage develops.

Application of Consumer and Producer Surplus
EVALUATING THE GAINS AND LOSSES FROM GOVERNMENT POLICIES— CONSUMER AND PRODUCER SURPLUS Application of Consumer and Producer Surplus ● welfare effects Gains and losses to consumers and producers. ● deadweight loss Net loss of total (consumer plus producer) surplus. Change in Consumer and Producer Surplus from Price Controls The price of a good has been regulated to be no higher than Pmax, which is below the market-clearing price P0. The gain to consumers is the difference between rectangle A and triangle B. The loss to producers is the sum of rectangle A and triangle C. Triangles B and C together measure the deadweight loss from price controls.

Application of Consumer and Producer Surplus
EVALUATING THE GAINS AND LOSSES FROM GOVERNMENT POLICIES— CONSUMER AND PRODUCER SURPLUS Application of Consumer and Producer Surplus Effect of Price Controls When Demand Is Inelastic If demand is sufficiently inelastic, triangle B can be larger than rectangle A. In this case, consumers suffer a net loss from price controls.

EVALUATING THE GAINS AND LOSSES FROM GOVERNMENT POLICIES—CONSUMER AND PRODUCER SURPLUS
Supply: QS = PG PO Demand: QD = −10.35 − 0.18PG PO Effects of Natural Gas Price Controls The market-clearing price of natural gas is \$6.40 per mcf, and the (hypothetical) maximum allowable price is \$3.00. A shortage of 23.6 − 20.6 = 3.0 Tcf results. The gain to consumers is rectangle A minus triangle B, and the loss to producers is rectangle A plus triangle C. The deadweight loss is the sum of triangles B plus C.

THE EFFICIENCY OF A COMPETITIVE MARKET
● economic efficiency : Maximization of aggregate consumer and producer surplus. Market Failure ● market failure Situation in which an unregulated competitive market is inefficient because prices fail to provide proper signals to consumers and producers. There are two important instances in which market failure can occur: Externalities Lack of Information ● externality Action taken by either a producer or a consumer which affects other producers or consumers but is not accounted for by the market price.

THE EFFICIENCY OF A COMPETITIVE MARKET
Welfare Loss When Price is Held Above Market-Clearing Level When price is regulated to be no lower than P2, only Q3 will be demanded. If Q3 is produced, the deadweight loss is given by triangles B and C. At price P2, producers would like to produce more than Q3. If they do, the deadweight loss will be even larger.

MINIMUM PRICES Price is regulated to be no lower than Pmin.
Price Minimum Price is regulated to be no lower than Pmin. Producers would like to supply Q2, but consumers will buy only Q3. If producers indeed produce Q2, the amount Q2 − Q3 will go unsold and the change in producer surplus will be A − C − D. In this case, producers as a group may be worse off.

MINIMUM PRICES Although the market-clearing wage is w0,
The Minimum Wage Although the market-clearing wage is w0, firms are not allowed to pay less than wmin. This results in unemployment of an amount L2 − L1 and a deadweight loss given by triangles B and C.

Monopoli : Monopoli dari bahasa Yunani “monos polein” yang berarti “menjual sendirian” Struktur pasar dimana seluruh output industri diproduksi & dikontrol oleh satu perusahaan (monopolist)

Asumsi Monopoli Di pasar terdiri dari banyak konsumen, sedangkan produsen hanya satu. Produsen bertindak sebagai pembuat harga (price maker) Terdapat halangan bagi produsen untuk keluar masuk industri Barang yang diperjualbelikan homogen

Kurva Permintaan Monopolis
Dalam industri hanya terdapat 1 produsen, maka kurva Permintaan monopolis sama dengan Permintaan industri (berslope negatif) Kurva permintaan industri sama dengan AR monopolis. Akan tetapi, MR < P Lihat Tabel 9.1 dan Gambar 9.1

PADA PPS Jumlah (Ton) Harga 100 200 S Dps Dperusahaan 1 2 3 4 10 20 30
10 20 30 40 Karena P adalah konstanta: TR = P x Q AR = TR/Q = PQ/Q = P MR = dTR/dQ = d (PQ) / dQ = P Maka Demand (QD) = P = AR =MTR PADA PPS

TR = P QD = (a-b QD ) QD = a QD – b QD2 AR = TR/Q = a –b QD = Demand
Demand  P = a-b QD TR = P QD = (a-b QD ) QD = a QD – b QD2 AR = TR/Q = a –b QD = Demand MR = dTR/dQ = a – 2b QD  Slope dua kali demand Jumlah Rupiah Per Unit D = AR MR 50 100 5 10 5 4

MR, TR & Elastisitas Permintaan
Hubungan antara MR dan elastisitas dapat dirumuskan; dimana: p = harga e = elastisitas permintaan, bertanda negatif 10 7

Hub. TR, AR, MR, Ed

Keuntungan Maksimum Monopolis
Tercapai pada saat MR=MC Tidak ada jaminan bahwa monopolis akan mendapat keuntungan. Jika monopolis tidak dapat menghilangkan kerugiannya, perusahaan akhirnya akan bangkrut.

MC MC Output Output (i) (ii)
Rupiah Per Unit Rupiah Per Unit MC MC ATC3 P0 ATC2 P0 ATC1 D D MR MR q0 q0 Output Output (i) (ii) 15 14

Kurva Penawaran Monopolist
Berbeda dengan PPS, pada monopoli tidak terdapat hubungan yang unik antara Harga (P) dengan jumlah output yang ditawarkan (Qs) Pada monopoli P > MR sehingga permintaan yang berbeda memberikan kenaikan output yg sama tapi kenaikan harga berbeda

Keseimbangan Jangka Panjang
Apabila monopolis memperoleh keuntungan, keuntungan tsb bisa diperoleh dlm jangka panjang Agar Monopolis memperoleh keuntungan dalam jangka panjang harus menciptakan hambatan bagi perusahaan lain untuk masuk ke dalam industri. 18 17

Hambatan Untuk Masuk Industri
1. Pengusaan bahan baku 2. Pengusaan teknik produksi tertentu No 1 dan no 2 bisa menyebabkan skala ekonomis 3. Tindakan yuridis, yaitu diberikannya hak- hak paten , 4. Diperoleh secara institusional, misalnya pemberian lisensi oleh pemerintah untuk berusaha secara tunggal.

Efisiensi Monopoli Efisiensi Produksi pada saat P = ATC minimum
Efisiensi Alokasi pada saat P=MC Pada monopoli efisiensi alokasi tidak mungkin tercapai karena MC = MR tetapi  P Sedangkan efisiensi produksi mungkin tercapai dan mungkin tidak

Efisiensi Produksi mungkin tercapai; MR memotong ATC minimum
MC ATC MR D=P=AR D ATCmin P1 P2 Efisiensi Produksi mungkin tercapai; MR memotong ATC minimum Efisiensi Produksi Tidak Mungkin tercapai; Q pada saat ATC yg tidak minimum 23 31

Perbandingan Pasar Monopoli dan PPS
Pengaruh Perubahan Biaya Produksi Bila ditemukan suatu teknologi baru, MC bergeser ke kanan. Keseimbangan yang baru tercapai pada tingkat Q yang lebih tinggi dan P yang lebih rendah. Apabila faktor-faktor lain tetap, kenaikan Q & penurunan P pada PPS akan lebih besar daripada pasar monopoli.

Pengaruh Perubahan Biaya Produksi pd Monopoli & PPS
S=MC MC D S1=MC1 MC1 Pm Pc Pm1 Pc1 Q Q qc qc1 qm qm1 2

Perubahan dari PPS Menjadi Monopoli Tanpa diikuti Perubahan Biaya
Jika perusahaan dalam PPS berubah menjadi monopoli tanpa perubahan biaya, maka Q akan turun (dari qc ke qm) sedangkan P akan naik (dari Pc ke Pm ). Terjadi deadweight loss sebesar segitiga acd : abc berasal dari SK dan bcd berasal dari SP 4

Perubahan PPS Menjadi Monopoli Tanpa Perubahan Biaya
MC=S Pm a c Pc b d D MR Q qm qc 2

Perubahan dari PPS menjadi monopoli yang diikuti perubahan biaya
Perubahan dr PPS menjadi monopoli dapat menyebabkan biaya menjadi lebih murah, sehingga MC bergeser ke kanan. Keuntungan yang diperoleh dengan adanya perubahan biaya tersebut disebut economies of scope Economies of scope dapat dicapai dengan menghasilkan bermacam-macam output, distribusi dalam skala besar, iklan secara nasional pembelian input dalam jumlah besar

Perubahan PPS menjadi Monopoli yang diikuti perubahan biaya
MCc=S MCM Pc Pm D MR qc qm Q 6