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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questions
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Revenue maximization problem
There are $N>0$ Households in an economy.
The government has aim to maximize a weighted average of income by imposing tax on the rich people and redistribute the tax revenue to the labor ones.
...
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1answer
123 views
A profit maximization problem (whole problem has been solved, I just have question about interpretation)
I would like to discuss with you about the following production function.
$$y=f(t_m, t_l)=\rho t_m^m(n+t_l)$$
where $0<m<1 $ and $n>0$ are fixed parameters.
$t_m$ is manager time.
$t_l$ ...
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2answers
82 views
Utility function_maximazation
A consumer is deciding about her hours ($h$) and consumption ($c$), her preference over bundles of work and consumption are as follows:
$U(c,h)= c + \sqrt{24-h}$
The consumer would get an hourly wage ...
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1answer
37 views
Why does the profit function in standard neoclassical theory have exactly one maximum?
In neoclassical theory is said that the highest profit occurs when Marginal Cost equals Marginal Revenue, but this condition wouldn't be enough to determine the maximum if there were more than one. ...
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2answers
53 views
profit-maximization
I'm having trouble on my homework and I need some help.
A company sells products in a perfectly competitive market, where the price is $p = 24.$ For each of the following cost functions, write down ...
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1answer
49 views
Can I get a more detailed explanation of the Weak Axiom of Profit Maximization?
In Hal Varian's Book "Microeconomic analysis" on page 35 he gives the following description of a profit maximising firm.
"...If the firm is maximising profits, then the observed net output choice at ...
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2answers
172 views
Opportunity profits vs. opportunity costs
Having learned that
Opportunity costs = the costs for avoided profits
are a well established and quite useful economic concept, I wonder how its counterpart is officially called and investigated:
...
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1answer
30 views
Maximizing units under a budget constraint and increasing costs
Consider two columns.
Column A has total cost per day, Column B has units bought that day. The marginal cost of each unit is increasing because of limited supply.
My goal is to estimate total ...
1
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1answer
47 views
Value Function For Durable-Good Monopolist with General Distribution
It is known that with a unit mass of consumers, each of whom has a value distributed between 0 and 1, one can think of the monopolist solving
\begin{equation}
\max_{p} \ p[1-F(p)]
\end{equation}
when ...
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3answers
99 views
Why are there not more competitive nonprofits?
For example, when I go to the grocery, and peruse the various goods for sale on the shelves, there is at least a 99.9% chance that any given product is produced for-profit. Even "Newman's Own", which ...
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0answers
36 views
Why equilibrium efficiency wage maximizes worker effort per dollar wage
In the Keynesian model,
to make as much profit as possible, firms will choose the level of the
real wage that gets the most effort from workers for each dollar of
real wages paid
Source: ...
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1answer
34 views
Production function involving profit maximisation
Hi, I don't get how the answer of d is deduced in this question because I don't think I made any mistakes in my calculation and have also used all the information given. After knowing L is 800, I ...
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0answers
98 views
Derivation of demand function
Hello.
I'm graduate student in Japan.
This time, what I want to ask is how to solve the profit maximization problem using the image production function and derive the demand function.
This ...
2
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1answer
120 views
CES production function profit and supply function
I need to derive the profit function for the following CES function: $$ f(z) = (\sqrt{z_{1}^{\rho} + z_{2}^{\rho}})^{1/ \rho}$$ where $\rho \leq 1$. This is the answer that I am supposed to be getting:...
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2answers
57 views
In the real world, how does a firm know their marginal costs and revenue? How do they mathematically calculate MC=MR?
I understand the theory behind it but in practice how is this done?
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2answers
456 views
Stackelberg with 3 firms
I'm currently trying to solve the following problem:
Stackelberg with 3 firms Imagine there are three firms on a monopolistically competitive
market. The marginal cost of produc- tion in each ...
2
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0answers
265 views
Finding long run equilibrium price, quantity and number of firms with a linear average cost function
I've been been brushing up on my micoreocnomics lately and I came across a question in Perloff that looked really simple, but for some reason I am struggling to answer:
Assume we are in the long run ...
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0answers
233 views
Question about an economy with 3 components household, firm and government with functions given
I've spent considerable amount of time on this question, in vain. It is from one of the competitive exams for admission to a grad econ program. Help would be tremendously appreciated. Thanks.
An ...
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0answers
25 views
Question on Finding the Correct Emission Tax $t$
Let there be two companies $U_{1}$ and $U_{2}$ where, initially $U_{1}$ produces and sells $x$ units at $p=18$. Production costs are $C_{U_{1}}(x)=\frac{1}{6}x^3$ and in the process $a$ units of ...
1
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1answer
27 views
Effect of changing MC on monopolists' maximised profits
Let a monopolist have constant MC = c, with no fixed costs. If $p(c)$ and $q(c)$ are the profit maximising price and output as a function of MC and the market demand schedule is given by $q = D(p)$, ...
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0answers
92 views
Profit maximization problem using linear regression (pooled OLS)
I'm currently on a university assignment where I'm stuck more or less in the middle. I have to answer the following problem:
Suppose you are interested in estimating the production function for ...
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1answer
194 views
Maximizing a Cobb-Douglas Function
Suppose that a competitive firm receives a price of $P$ for its output, and pays prices of w, r and v for its labor $(L)$, capital $(K)$ and natural resources $(R)$ inputs, respectively. The firm ...
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0answers
69 views
Convexity of profit function
The profit function is convex in prices. Are there any conditions under which it is linear in prices? (The property as written in most books doesn't mention strict convexity, so it seems to suggest ...
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1answer
1k views
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, ...
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votes
3answers
115 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, I have ...
4
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1answer
84 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 ...
1
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1answer
23 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 ...
1
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2answers
30 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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1answer
21 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
votes
4answers
148 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
328 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
661 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
26 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
$$ w_t = \...
0
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1answer
91 views
When do firms pursue the cost minimization objective instead of profit maximization? Are there any intuitive/practical examples/reasons?
I understand that profit maximization implies cost minimization, that is, if a firm is maximizing profits, it will definitely minimize costs.
However, under what conditions does cost minimization ...
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0answers
195 views
Firm's profit max problem, in present value terms
So I am kinda stuck on this question. The question goes as follows:
Consider a multiperiod firm, selling q1 units of a product in period t=1 at spot price P1 and q2 units in period t=2 at spot price ...
2
votes
1answer
102 views
How to work out Price with only the Derivative of Profit Function?
Best response functions are obtained by differentiating a profit function and solving for q.
In equilibrium, the firms produce 30. But, there's no inverse demand function, so how would equilibrium ...
1
vote
1answer
277 views
Revenue maximization
We have two firms with identical cost structure compete in a market
Demand function = $p=a-bq$
And $q=q_1+q_2$
They are identical in every way. However, firm 1 maximizes profit and firm 2 ...
2
votes
1answer
225 views
Cournot equilibrium question
There are two firs in the market. They produce perfect substitutes at cost $c(y_i)=y_i/3$ for i=1,2. The demand function is $p=1-(y_1+y_2)$
Consider the Cournot competition where firms ...
1
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1answer
124 views
Profit maximization question
Two firms are in a market together. They produce a product.
Total revenue from sales is $y=K+L$
K is the amount of capital
L is the amount of labor
These two firms each specialized in supplying ...
2
votes
2answers
2k views
Utility maximization question setting up.
Consider a consumer whose preferences can be represented by the following utility function: $$u(x_1,x_2)=\dfrac{x_2}{(1+x_1)^2}.$$
Assume the agent's income is $y=5$. The price of one unit ...
3
votes
1answer
60 views
The relationship between gross profit and tax
I tried to do following question but I am not sure about my solution. Please tell me your opinions
Since gross profit is strictly concave, I can say that $R’’(y)-C’’(y) <0$
Now I maximize the ...
2
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1answer
94 views
Profit Function: Just revenue maximization subject to constraint? if so where is $\lambda$?
Disclaimer: I dont know i'm getting confused with basic microeconomic prodoucer theory (note: Ive been watching some Hak Choi Videos on youtube),but this is my overall thought process.
We know that ...
0
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1answer
57 views
How to prove that a point is a maximum point
I have the following function:
$$
\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 $$
The first derivative with respect to $z$ is:...
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0answers
42 views
How to find right MRP_L in this economic problem?
Economic problem from my textbook (here is my translation from Russian):
There is a firm that is both monopoly and monopsony. It's monopoly on market of its product and it's monopsony on labor market ...
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1answer
1k views
Cartel profit maximizing quantity question (Cournot game)
Find the Nash equilibrium of Cournot’s game when there are two firms, the inverse demand function is P(Q) = α – Q when α ≥ Q and 0 otherwise, and the cost function of each firm I is Ci(qi) = qi2. If ...
3
votes
1answer
59 views
Profit maximization under uncertainity
I have a seller say S and I have a buyer say B. Buyer’s willing to pay is equal to x which is private information. But Seller believe that it falls in the range [0,x1]. Seller’s belief distribution is ...
4
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1answer
616 views
Could someone please explain the proof of Hotelling's lemma?
According to https://en.wikipedia.org/wiki/Hotelling%27s_lemma,
the maximum of the firm's profit at some output is given by the minimum of the difference between the profit and the revenue.
However,...
12
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2answers
2k views
Monopolies are just a mathematical misunderstanding
A little head-scratcher (and a good example why we should be careful with notation).
Consider a profit maximizing monopoly, that solves over price
$$\max \pi = PQ(P) - C(Q(P)) \tag{1}$$
Following ...
1
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1answer
1k 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
33 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 ...
