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#cfa-level-1 #economics #reading-15-demand-and-supply-analysis-the-firm #section-3-analysis-of-revenue-costs-and-profit
Aproach:
  • the difference between total revenue (TR) and total costs (TC) is the greatest;

In this approach, a firm starts by forecasting unit sales, which becomes the basis for estimates of future revenue and production costs. By comparing predicted total revenue to predicted total costs for different output levels, the firm targets the quantity that yields the greatest profit.
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3.1.4. Output Optimization and Maximization of Profit
the revenue value of the output from the last unit of input employed equals the cost of employing that input unit (as later developed in Equation 12). All three approaches derive the same profit-maximizing output level. <span>In the first approach, a firm starts by forecasting unit sales, which becomes the basis for estimates of future revenue and production costs. By comparing predicted total revenue to predicted total costs for different output levels, the firm targets the quantity that yields the greatest profit. When using the marginal revenue–marginal cost approach, the firm compares the change in predicted total revenue (MR) with the change in predicted total costs (MC) by unit of output. If


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