Producer theory

Question 1

What is the profit function?

Answer 1

π(Q) = P(Q) * Q - C(Q)

C(Q) = Total Cost
P(Q) * Q = Total revenue

Question 2

What’s the condition for profit maximisation?

Answer 2

MR =MC

Question 3

How do you find marginal revenue (MR) if P(Q)=a−bQ?

Answer 3

MR = a- 2bQ

Question 4

What is the inverse demand function?

Answer 4

P(Q) = a - bQ

Q = quantity demanded
a = intercept of the demand curve, when Q=0
b = the slope of the demand curve - how much price falls when Q increases by 1