Profit-maximising price
Under a differentiable single-product model, an interior profit maximum occurs where marginal revenue equals marginal cost, provided the relationship actually produces a maximum and all constraints are satisfied. A tabular method compares total profit at feasible price-quantity combinations. Fixed costs affect total profit but do not change the interior optimum when unchanged. Demand, capacity, discrete pricing options and strategic effects can make a simple mathematical solution impractical.
Worked example
P = 50 − 0.10Q gives MR = 50 − 0.20Q. With constant MC $10, Q = 200 and P = $30, before checking capacity and model validity.
Common mistake
MR = MC is not a universal instruction to ignore capacity, changing fixed costs or whether the estimated demand curve is credible.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | PM | Direct | September 2026–June 2027 |