# 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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### 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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### 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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### 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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### 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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### 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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### 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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### 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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### 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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### 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 ...
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### 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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### 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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### 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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### Why is AC = MC in the monopoly?

Using the Microeconomic Theory Basic Principles and Extensions, Nicholson, W. and Snyder, C., I've reached to the point where Monopoly and Imperfect Competition is discussed (Chapter 14 and 15 to be ...
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### 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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### 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 ...
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### 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 ...
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### 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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### 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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### 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 ...
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### 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 ...
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### 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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### 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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### 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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### 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 ...
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### 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 ...
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I am a fledgling computer science researcher working in intersection of economics and computation. Please excuse me if this question seems out of place to the administrator. I am currently studying ...
I am working on a model of optimal payout percentages in the gambling industry. Because the nominal price of a \$1 ticket is always \$1, we use an effective price strategy where Q = \\$1 in won ...