Work through the list without notes. If you cannot do a statement, follow its link, then come back. Guide = study guide; Practice = practice questions.
Understanding
- I can state the profit-maximizing rule (MR = MC, with MC rising) and explain it with marginal reasoning. (Guide: “Marginal revenue and marginal cost”; Practice Q2, Q7(a))
- I can explain why MR equals the price for a price-taking firm but is below the price for a firm that must cut its price to sell more. (Guide: “What MR looks like for different firms”; Practice Q3)
- I can explain why the MR = MC output may give a loss, not a profit. (Guide: Worked example 1(d); Practice Q4(d))
- I can explain why maximizing revenue or profit per unit is not the same as maximizing profit. (Guide: Worked example 2(d); Practice Q1, Q6(d))
Calculation and graphing
- I can calculate MR and MC from tables of price, TR and TC. (Guide: Worked examples 1 and 2; Practice Q4, Q6)
- I can find the profit-maximizing output in whole units by producing every unit with MR ≥ MC. (Guide: “Using the rule with whole units”; Practice Q1, Q4)
- I can confirm the answer with the total approach (largest TR − TC) and state the profit with units. (Guide: Worked example 1(c); Practice Q4(c), Q6(c))
- I can read the price of a price-setting firm from the price row or demand curve, not from MR. (Guide: Figure 2; Practice Q3, Q6(b))
- I can draw a labelled MR and MC graph and mark the profit-maximizing quantity where rising MC crosses MR. (Guide: Figure 1; Practice Q5)
Reasoning
- I can show how a change in the market price changes a price taker’s output. (Practice Q5(b))
- I can explain why a change in fixed cost leaves output unchanged but a change in variable cost does not. (Guide: “Why fixed costs do not change the output”; Practice Q5(c), Q7)
- I can reject a crossing where MC is still falling. (Guide: Worked example 1(d))
All ticked? Move on to Topic 3.6, Firms’ Short-Run Decisions to Produce and Long-Run Decisions to Enter or Exit a Market, or return to the course roadmap.