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The total revenuetotal cost perspective and the marginal revenue marginal cost perspective are used to find profit maximizing quantities. LEARNING OBJECTIVE [ edit ] Use cost curves to find profitmaximizing quantities KEY POINTS [ edit ] In a free market economy, firms use cost curves to find the optimal point of production (minimizing cost). Profit maximization is the process that a firm uses to determine the price and output level that returns the greatest profit when producing a good or service. The total revenuetotal cost perspective recognizes that profit is equal to the total revenue (TR) minus the total cost (TC). The marginal revenuemarginal cost perspective relies on the understanding that for each unit sold, the marginal profit equals the marginal revenue (MR) minus the marginal cost (MC). TERMS [ edit ] marginal revenue The additional profit that will be generated by increasing product sales by one unit. Total Revenue The profit from each item multiplied by the number of items sold. Give us feedback on this content: FULL TEXT [ edit ] Cost Curve In economics, a cost curve is a graph that shows the costs of production as a function of total quantity produced. In a free market economy, firms use cost curves to find the optimal point of production (minimizing cost). By locating the optimal point of production, firms can decide what output quantities are needed. The various types of cost curves include total, average, marginal curves. Some of the cost curves analyze the short run, while others focus on the long run. Profit Maximization Profit maximization is the short run or Register for FREE to stop seeing ads long run process that a firm uses to determine the price and output level that returns the greatest profit when producing a good or service. Graphing Profit Maximization There are two ways in which cost curves can be used to find profit maximizing quantities: the total revenuetotal cost perspective and the marginal revenuemarginal cost perspective. The total revenuetotal cost perspective recognizes that profit is equal to the total revenue (TR) minus the total cost (TC). When a table of costs and revenues is available, a firm can plot the data onto a profit curve. The profit maximizing output is the one at which the profit reaches its maximum . Costs TC TR C B A 0 Output Profit Total cost curve This graph depicts profit maximization on a total cost curve. The marginal revenuemarginal cost perspective relies on the understanding that for each unit sold, the marginal profit equals the marginal revenue (MR) minus the marginal cost (MC). If the marginal revenue is greater than the marginal cost, then the marginal profit is positive and a greater quantity of the good should be produced. Likewise, if the marginal revenue is less than the marginal cost, the marginal profit is negative and a lesser quantity of the good should be produced . Price MC ATC P C A D=AR=MR B Q Quantity Marginal cost curve This graph shows profit maximization using a marginal cost curve. Profit maximization is directly impacts the supply anddemand of a product. Supply curves are used to show an estimation of variables within a market economy, one of which is the general price level of the product.