Questions tagged [profit-maximization]
A modelling approach in which firms' plants are chosen via maximizing a profit function under a demand or resource limit restriction.
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Profit maximization and returns to scale relation
Suppose we have 2 inputs a and b , output is y=f(a,b).
In the long run, let us suppose profits are maximized at a* and b*.
Profit is py-wa-kb[p is price and w and k are constants]. Now for max profit, ...
0
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1answer
21 views
Is “$ f(k,l) \: is \: decreasing\:return\:to\:scale \Leftrightarrow f_{ll}f_{kk}-f_{kl}^2>0$” always true?
For the productions $f(k,l) $ that are continuously differentiable, is the proposition that "$ f(k,l) \: is \: decreasing\:return\:to\:scale \Leftrightarrow f_{ll}f_{kk}-f_{kl}^2>0$" always true, ...
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0answers
25 views
What term is used for the “maximum” price a product can ever attain at fixed costs and how is it calculated?
So somehow price cap and market cap don't capture the meaning of this term, but I am looking for the formal term for the maximum price or at least the maximum worth a company can ever hope to possibly ...
4
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1answer
55 views
Decision over “max” production function:
I've been presented with the following problem:
$$y=3(x_3)^{\frac13}(\max\{x_1,8x_2\})^{\frac13}$$
And the objective is to both maximize profit and minimize cost. First of all, if the problems are ...
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1answer
20 views
Understanding the use case of farming crickets in developed countries
Currently, farming crickets is quite labor intensive.
No wonder that if you compare prices, in developed countries you get crickets at say \$100/kg, while in Thailand they cost under \$2/pound, in an ...
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2answers
26 views
2 firms production decision for one agent
I'm trying to solve the optimal production $\{x,y\}$ for a risk neutral agent with weight $w$ in firm $X$ and weight $1-w$ in firm $Y$. Each firm has marginal cost $c^X$ and $c^Y$ respectively. The ...
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0answers
27 views
Profit maximization under stochastically independence
Consider a risk-neutral profit-maximizing firm that produces output y from input x using the technology y = f(x), f’(x) > 0 and f’’(x) < 0. It is possible to ob-tain x from two sources: either ...
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1answer
20 views
When to invest into additional products?
This is a very applied question so I hope it's the correct adress here for it:
I'm running a small entertaining business for virtual reality experiences. Investment was about 120 k. I now build it ...
4
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4answers
120 views
If house prices appreciate, why do developers sell them?
In many parts of the world, people buy a house expecting its value to increase over time.
But if is widely believed that the building's value will increase, what incentive is there for the developer ...
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1answer
162 views
Profit maximization and allocative efficiency result
I completely stuck to the last part of this exercise. I cannot understand how can I determine an allocative efficiency result.
Any help will be appreciated. Thank you.
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2answers
164 views
Question on profit maximization with government taxation
(I) A monopolist has a cost function $c(q)=q$. It faces the following demand function $ q(p)=100/p$ for $p\le 20$ and $q(p)=0$ for $p\ge 20$. What are the profit maximizing price and output.
(ii) a ...
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1answer
17 views
How to calculate the optimal wage and the optimal rent on capital in an economic model?
In Dhondt & Heylen (2009)*, they specify a certain production function.
Under some standard model assumptions such as perfect competition and so on, they calculate the optimal wage as
$$ w_t = \...
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1answer
37 views
When do firms pursue the cost minimization objective instead of profit maximization? Are there any intuitive/practical examples/reasons?
I understand that profit maximization implies cost minimization, that is, if a firm is maximizing profits, it will definitely minimize costs.
However, under what conditions does cost minimization ...
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0answers
117 views
Firm's profit max problem, in present value terms
So I am kinda stuck on this question. The question goes as follows:
Consider a multiperiod firm, selling q1 units of a product in period t=1 at spot price P1 and q2 units in period t=2 at spot price ...
2
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1answer
28 views
How to work out Price with only the Derivative of Profit Function?
Best response functions are obtained by differentiating a profit function and solving for q.
In equilibrium, the firms produce 30. But, there's no inverse demand function, so how would equilibrium ...
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0answers
22 views
I'm having problems with determining price and profit maximization in Cournot example?
Hello, in the graph i provided we used 2 firms, Samsung and LG. LG produces 50 units. Then we have the residual demand curve which shifts left by 50 units because of that. However, as I understood, ...
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1answer
161 views
Revenue maximization
We have two firms with identical cost structure compete in a market
Demand function = $p=a-bq$
And $q=q_1+q_2$
They are identical in every way. However, firm 1 maximizes profit and firm 2 ...
2
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1answer
100 views
Cournot equilibrium question
There are two firs in the market. They produce perfect substitutes at cost $c(y_i)=y_i/3$ for i=1,2. The demand function is $p=1-(y_1+y_2)$
Consider the Cournot competition where firms ...
1
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1answer
61 views
Profit maximization question
Two firms are in a market together. They produce a product.
Total revenue from sales is $y=K+L$
K is the amount of capital
L is the amount of labor
These two firms each specialized in supplying ...
2
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2answers
670 views
Utility maximization question setting up.
Consider a consumer whose preferences can be represented by the following utility function: $$u(x_1,x_2)=\dfrac{x_2}{(1+x_1)^2}.$$
Assume the agent's income is $y=5$. The price of one unit ...
3
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1answer
42 views
The relationship between gross profit and tax
I tried to do following question but I am not sure about my solution. Please tell me your opinions
Since gross profit is strictly concave, I can say that $R’’(y)-C’’(y) <0$
Now I maximize the ...
2
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1answer
52 views
Profit Function: Just revenue maximization subject to constraint? if so where is $\lambda$?
Disclaimer: I dont know i'm getting confused with basic microeconomic prodoucer theory (note: Ive been watching some Hak Choi Videos on youtube),but this is my overall thought process.
We know that ...
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1answer
56 views
How to prove that a point is a maximum point
I have the following function:
$$
\Pi =\int_{0}^{z}[x_{1} + \alpha y + \alpha \frac{N-2}{2}y - \beta(z) - \gamma ( \beta(z) - \beta(y))](N-1)y^{N-2} dy $$
The first derivative with respect to $z$ is:...
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0answers
64 views
Maximizing utility function (auction theory)
There are two bidders (two individuals). Bidder 1 wants to maximize the following function (his utility function):
$$ u_{1}(V,b_{1} | b^{w}) = \begin{cases}
x_{1} + x_{2} - b_{1} & \quad ...
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0answers
34 views
How to find right MRP_L in this economic problem?
Economic problem from my textbook (here is my translation from Russian):
There is a firm that is both monopoly and monopsony. It's monopoly on market of its product and it's monopsony on labor market ...
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1answer
177 views
Cartel profit maximizing quantity question (Cournot game)
Find the Nash equilibrium of Cournot’s game when there are two firms, the inverse demand function is P(Q) = α – Q when α ≥ Q and 0 otherwise, and the cost function of each firm I is Ci(qi) = qi2. If ...
3
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1answer
52 views
Profit maximization under uncertainity
I have a seller say S and I have a buyer say B. Buyer’s willing to pay is equal to x which is private information. But Seller believe that it falls in the range [0,x1]. Seller’s belief distribution is ...
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0answers
11 views
How is a point at which a company's supply is perfectly elastic derived?
There is a sentence on my slide:
y = x_1 + x_2. If p_y > min{w_1, w_2}, profits are unbounded. The firm’s
supply is perfectly elastic at p_y = min{w_1, w_2}
How is p_y = min{w_1, w_2} obtained?
The ...
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1answer
379 views
Could someone please explain the proof of Hotelling's lemma?
According to https://en.wikipedia.org/wiki/Hotelling%27s_lemma,
the maximum of the firm's profit at some output is given by the minimum of the difference between the profit and the revenue.
However,...
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2answers
2k views
Monopolies are just a mathematical misunderstanding
A little head-scratcher (and a good example why we should be careful with notation).
Consider a profit maximizing monopoly, that solves over price
$$\max \pi = PQ(P) - C(Q(P)) \tag{1}$$
Following ...
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1answer
566 views
Profit maximization with Cobb-Douglas function
I'm trying to maximize a firm's profit given the production function $F(L,K)=L^\alpha K^\beta$ (where $L$ is labor and $K$ is capital) and that $\alpha + \beta \neq 1$.
So, I know that this ...
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2answers
31 views
How do calculate whether selling a product leads to profit?
To simplify things, imagine a company which sells two products, A, and B, and it has two types of revenues, two types of variable costs, and 1 type of fixed costs.
I can calculate margins by taking ...
3
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1answer
104 views
Expectations in Gali's classical monetary model
In Gali chapter 2 we have the following constraint to the classical monetary model
$P_t C_t + Q_t B_t \leq B_{t-1} + W_t N_t-T_t$.
Then it seems that this is treated as an equality. Therefore my ...
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1answer
152 views
Help with this microeconomics exercise
The question:
A price-taking farmer produces a crop with labor L as the only input.
His production function is:$$F(L) = 10L^{1/2} − 2L$$
He has 4 units of labor
in his family and he cannot hire ...
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1answer
478 views
Profit maximisation and cost minimization [closed]
Does profit maximisation always imply cost minimisation ? And
Does cost minimization always imply profit maximisation ?
Can we prove both the results ??
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3answers
897 views
Why are firms taken to be profit-maximizing? Shouldn't that make them risk-neutral?
Intro texts normally explain that insurance firms (casinos, etc.) "work" by diversifying risk from many clients. Unsaid, then, seems to be that risk is bad for both firm and client.
But why should a ...
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1answer
39 views
What does this condition for a profit of a firm exist mean?
What is the intuition behind this?
Let $Y=zF(K,N)$ be a production function.
For a profit to exist Indana conditions must hold and :
$$\frac{∂^2zF(K,N^d)}{\partial K \partial N} > 0$$
I ...
2
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0answers
130 views
How Would a Firm Which Produces a Giffen Good Maximize Profits?
I am curious as to how a firm which produces a giffen good would maximize profits? Having an upward sloping demand curve seems to imply that we cannot guarantee that there exists a quantity where ...
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1answer
205 views
Why do firms adjust their fixed costs in response to a change in price in a perfectly competitive market?
When firms make a profit in a perfectly competitive market, new firms enter the market and drive the price down. My textbook says that the existing firms will then adjust inputs that are fixed in the ...
2
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2answers
144 views
How come websites such as Khan Academy and Anatomy Zone do not charge for their services?
I've noticed that most educational websites do not charge for their services, even if they are maintained by only one or very few people.
Some of these websites are so comprehensive that they require ...
4
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2answers
693 views
Optimize by MR = MC vs TR = TC
I know that I should optimize production by solving $MR = MC$ with respect to $Q$.
But if $TR > TC$, I am making a profit. Why is not enough to just solve $TR = TC$ with respect to $Q$?
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2answers
106 views
Profit Maximisation if MC is still falling after intersecting MR
really basic one here, I am just in the process of re-covering old ground.
I understand that for any profit maximising firm
FOC: MC=MR
SOC: MR'< MC'
But suppose MC has a minimum beyond the ...
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0answers
441 views
Monotonic Transformation
How does positive monotonic transformation of production function effect the resulting profit function?
For example if we had production function $f(x) $ and that gave profit function $\pi(p,w)$. Now ...
3
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1answer
389 views
Homothetic production function and Profit Function
I know that homothetic production function implies that cost function is multiplicatively separable in input prices and output, and it can be written as
C(w,y)=h(y)C(w,1). Can some one help me derive ...
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2answers
498 views
Neoclassical economic profit and growth theory versus marxian
Marxists have a very specific "profit" and "economic growth" theory. According to marxists, profit doesn't come from technology, whose cost will be reflected in the price of whatever commodity the ...
1
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1answer
634 views
Duality of cost minimization and profit maximization
The firm tries to maximize profits $\Pi$
\begin{align}
\max_{K,L}\{\Pi(K,L) = F(K,L) - RK - wL\}
\end{align}
where $F$ is the linear homogeneous production function, $R$ the rental rate of capital $K$...
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2answers
56 views
What is this economic theory? Cost of investment vs production accounting for time?
I know there has got to be a standard set of theories or formulas to chart this but I don't know how to search for it. Other than a great place like this. :)
I'm a software developer and not an ...
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4answers
1k views
Can destruction be profitable?
We often see news that some company destroys items they couldn't sell in time.
Also we can see news of supermarkets destroying food just because it's not fresh although it's perfectly edible.
If ...
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0answers
41 views
How do organisations diversify? Determinants of choosing new target industries
A very weird question I agree.
I am interested in understanding the motives behind firm behaviours of diversification. Why would some firms choose new target sectors/activities?
Is there any ...
3
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0answers
93 views
Appropriate economic/econometric tools to analyze segmented promotion optimization problem
I'm trying to determine which micro-economic/econometrics concepts, models, and/or tools are appropriate for an analysis of promotions.
Below I
Describe the problem in general terms
Give ...
