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Hello sir.
Recently ive noticed that when doing P=a -bQ questions they ask ” whats the selling price to maximise Revenue” and they dont give variable cost so we use MC=0 and find the quantity from P=a – 2bQ formula.
And they ask ” whats the selling price to maximise Profits” and they give VC=MC so we say MC=MR and do P=a – 2bQ=MC and find Q.
Sir why is that ?
Its my final revision and all i do now is to try and automate the techniques without understanding so i beg for your help here 🙂
It is not that we assume MC = 0.
If you look at what the graph of the total revenue looks like (I show it in my free lecture) the while the revenue is increasing the extra revenue (i.e. the marginal revenue) is positive. Where the total revenue is decreasing the extra revenue is falling. At the maximum total revenue the extra revenue is zero.
Therefore maximum total revenue occurs when the marginal revenue equals zero.
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