Level of output which maximizes profit

CFA Level I Economics
#1

Hi guys, me again with hopefully a quick question.

I realise the profit maximizing output level is where MR = MC or where the distance between TR and TC is the greatest.

However, where does this correspond to on a cost chart, I.e. the minimum point on the ATC curve maximizes profit per unit but not necessarily total profit.

I suppose I’m asking if there is a minimum point on any cost curve (ATC, AVC, MC) that corresponds with the output level that generates the highest amount of profit?

Also at the profit maximizing level, what is the relationship between ATC and MC? I.e. what would the curves look like?

I guess this is turning out to be a slightly longer question than I initially hoped but will really appreciate any pointers on this!

#2

Nope.

You could have MC < ATC, MC = ATC, or MC < ATC. There’s no single relationship between MC and ATC when MC = MR. Sorry.

Sorry I couldn’t be of more help. You cannot do anything only with cost to determine the quantity that maximizes profit.

#3

Thanks S2000! I’ve read up on this in more detail and finally understand!

Sorry, one more quick q… with regard to monopolistic competition in the LR, as price will correspond with a point higher than the minimum point on the ATC curve, quantity produced will be lower than perfect competition. I take it that must also mean price is higher than perfect competition in the LR?

#4

Yup.

#5

Thank you!

#6

My pleasure.