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2. KRUGMAN’S
Economics
for AP®
S E C O N D E D I T I O N

3. Section 10
Module 53

4. What You Will Learn in this Module
Perform marginal analysis
Determine the profit-maximizing level of output using the optimal output rule
What You Will Learn in this Module
Section 10 | Module 53

5. Maximizing Profit
TR = P x Q
Profit = TR - TC
Section 10 | Module 53

6. Maximizing Profit
Section 10 | Module 53

7. Using Marginal Analysis to Choose the Profit-Maximizing Quantity of Output
Marginal revenue is the change in total revenue generated by an additional unit of output.
MR = ∆TR/∆Q
Section 10 | Module 53

8. The Optimal Output Rule
The optimal output rule says that profit is maximized by producing the quantity of output at which the marginal cost of the last unit produced is equal to its marginal revenue.
Section 10 | Module 53

9. Short-Run Costs for Jennifer and Jason’s Farm
Section 10 | Module 53

10. Marginal Analysis Leads to Profit-Maximizing Quantity of Output
The firm’s optimal output rule says that a firm’s profit is maximized by producing the quantity of output at which the marginal cost of the last unit produced is equal to the market price.
The marginal revenue curve shows how marginal revenue varies as output varies.
Section 10 | Module 53

11. The Firm’s Profit-Maximizing Quantity of Output
Section 10 | Module 53

12. When Is Production Profitable?
Production is profitable when the firm’s optimal quantity of output at the market price results in (at least) a normal profit.
Section 10 | Module 53

13. Summary
A producer chooses output according to the optimal output rule: produce the quantity at which marginal revenue equals marginal cost.
For a price-taking firm, marginal revenue is equal to price and its marginal revenue curve is a horizontal line at the market price. It chooses output according to the firm’s optimal output rule: produce the quantity at which price equals marginal cost.
Section 10 | Module 53