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John Moffat.
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Syed Ahsan Ali
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Can you please help with these two questions about where do we have Maximum Profit and Maximum Revenue in the Pricing decision?
(1) Max Profit occur at a point where we have (MR = MC); We have optimum selling price when MR = MC;
[optimum selling price is where we have maximum profit but demand is lowest]
(2) Max Revenue occur at a point where we have our (MR = 0); We have optimum demand when MR = 0;
[optimum demand is where we have maximum demand but selling price is 0]
Is it correct?
I watched your lecture sir but you didn’t say anything about max revenue. Can we be asked about it in the exam?
John Moffat
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(1) is correct.
(2) is not correct. We have maximum revenue when MR = 0.
(Maximum demand is indeed when the selling price is 0, but if the selling price is 0 then the revenue will be 0.).
This can be asked in the exam and if you look at the graph of revenue where is talk about the marginal revenue, you will see that the marginal revenue is 0 at the maximum point on the graph.Syed Ahsan Ali
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(2) So Maximum revenue is where MR = 0 and it is where we have MR = MC (That is actually very theoretical)
Please elaborate on the steps involved to calculate max revenue?
John Moffat
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The maximum revenue is where MR = 0, which is not where MR = MC.
The formula for MR is given on the formula sheet and you use it just as I do in the lectures, make it equal to zero and then use a bit of basic algebra to solve the equation.
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