May 13, 2008: Paper 2 “Using at least one diagram, explain the difference between profit maximization and sales revenue maximization as goals of the firm.”

Essential Definitions and Diagrams:

Profit Maximization: Profit Maximization is the point at which MC and MR on the revenue and cost graph are equal. At this point, the firm is maximizing the profit it is generating from the sales of it’s products. At this point, a specific price and quantity are determined which allow for the firm to maximize it’s profits.

Sales Revenue Maximization: Sales Revenue Maximization is the point at which MR is equal to zero. At this point the firm is not wasting any materials and is therefore being environmentally friendly. This can be considered a goal for the firm, as it results in the firm maximizing the initial revenue from sales (while not necessarily generating a profit).

 

Normal Profit: Normal Profit is when a firm is spending as much money as they are receiving from revenue. On the normal cost curve diagram, this point is where AC is equal to AR. At this point the firm is generating no profit, but is not in danger of having to shut down, either, as shown in Figure 3 below.

 

 

Abnormal Profit: Abnormal Profit is when a firm is receiving more money from revenue than they are spending on production. On the normal cost curve diagram, this point is where AR is greater than AC. This point in shown below in Figure 4, with the highlighted box representing the profit earned by the firm after production costs.

 

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Monopolistic Competition

Here is my group’s final presentation for Monopolistic Competition. We ran into a few problems with this presentation, but found that we were able to still present effectively and convey our ideas. Feel free to use the powerpoint for any type of Monopolistic Competition review necessary.

IB HL Economics Semester I Final Portfolio Review

Here’s my portfolio powerpoint I used to help me review all the concepts we have covered in the first semester. I feel that this post is more for myself than for anyone else to read, as it’s just another way of keeping a tab on my work so I can keep it all backed-up online. The benefit of putting it on my blog of course is that it’s free for you, the readers, to use as a review tool. I tried to keep the real-world examples for all of the definitions consistent and easy to read. I hope this can be used as a learning tool for anyone out there looking into the field of economics. Cheers.