before we move on to the next section I do want to give you guys some additional practice with a five-step process for maximizing profits and we do so with a few of the practice problems 31 32 and 33 specifically and so far we've been working with this five step process for maximizing profits only using an illustration or graph then we can use the same process when we have very specific numbers laid out in a table as such so let's go ahead and see how things are slightly different but also the same as well first we notice that this toy making firm in the table faces a market price of $20 and because we are taking a look at perfect competition we notice that the market price of $20 is also our marginal revenue so remember marginal revenue equals the price under perfect competition that's always going to be the case under this market structure that is our first step in the process our first step is to go ahead and find marginal revenue equals to marginal cost and we do have a marginal cost table column right here but your nurse you're gonna notice that hey we don't exactly have twenty dollars and any of these particular numbers which is why we have to use a little bit more intuition to build a spa you notice that the marginal cost starts out pretty high start to go down and start to increase once again so in this instance we notice that our marginal revenue line intersects the marginal cost line in two different points so exactly which one of these intersections is going to be the best for the firm in this instance so let's use a little bit of intuition typically we do skip over the first intersection just because the firm is sort of starting starting off so we just want to go ahead skip a few sort of numbers for the marginal cost the first few quantities and go ahead and taste a take a look at the quantity two four right here does that make sense for this firm to be producing with a quantity of 40 with a marginal cost of nineteen dollars and twenty three cents and the answer is yeah it sure it does it absolutely makes sense for the firm to continue on with production right here because remember the marginal revenue is twenty dollars meaning that they're receiving twenty dollars for every unit that they sell but it's only causing the nineteen dollars and twenty three cents to produce this additional good so if marginal revenue is bigger than marginal cost you should go ahead and increase your production then we continue on to the next step with fifty-four units does it make sense for the farm to you passed this point and once again the answer is yes if they're receiving $20 for every additional unit they sell but it only cost them 17.8 e6 cents for each additional unit they produce so once again continue on with production does it make sense for them to produce 66 units and that's where the answer now becomes no they're only receiving $20 but now it's costing them to $20 and 83 cents so therefore it's not going to be in the best interest it's not incentivized for the firm to produce 66 units in this case so therefore we notice that the firm's profit maximizing q in this case we can call it Q star is going to equal to 54 units so in this example we try to get as close as we can to $20 without going over $20 because if we go over that the marginal cost goes over the marginal revenue or the price then that's exactly where they're gonna be losing money so in this case we noticed that Q star is gonna be the second intersection as we sort of call it will just call it Q star in general and we typically skip over this first intersection just go straight to the second intersection and that Q star is equal to 54 units then we continue on with the other steps of the process so step number one was to find em are just MC and that's exactly where we are with 1786 step number two is to find the profit maximizing quantity that's 50 for the profit maximizing price is step number 3 we already know that because the information is given to us that's $20 step number 4 is to find ATC and we notice that ATC is $32.40 is the firm only profits losses or zero economic profit and the numbers that we have right here because ATC is bigger than the price ATC is bigger than $20 we notice that the firm is gonna be encourage some type of losses so remember that anytime ATC is less than price the firm is earning losses sorry so this is going to be a greater than not a less than so anytime ATC is bigger than our place therefore the firm is going to be earning some type of loss but remember anytime a firm earns a loss what extra decision does it have to make for itself does it want to shut down or does it want to continue on with these losses and how exactly do we do that we need to take a look at a VC so our a VC in this instance is 23 dollars and 15 cents our ADC is bigger than the price and what would we say about the shutdown conditions here what should the firm do the firm should go ahead and shut down anytime the price is less than ABC we know that the firm should go ahead and shut down and that's exactly where we come to the question choice Dean right here where the forum actually does best to go ahead and shut down so we did the same five-step powder for maximizing profits as we did with a graphical case but now we're inserting specific numbers and we sell follow the same methodology as we do here let's go ahead and change the numbers up just a little bit and take a look at question number 32 where we face a market price of $25 so now price is equal to $25 if you take a look at our first step where this M are equal to MC we notice that hits at two different points so once again do we hit the first intersection or do we have the second intersection and we want to go ahead and hit the second intersection we ask yourself does it make sense for the firm to go past this first point so here 19:17 20 it does make sense for the firm to go past 27 units because they are the marginal cost is lower than the marginal revenue so in this case it always incentivizes or boohoo's the firm to produce more at marginal revenue is greater than marginal cost there's just extra revenue and extra profits to be made do they continue on past seventy six units or do they go stop at seventy six units if we take a look at 84 units you notice that the marginal cost is $31.25 so they say oh no that marginal cost is larger than our marginal revenue so once again we're gonna stop here at the new Q star of 25 and 75 for the claw 76 for the quantity then we follow the same exact steps so step number one what's the five and mihari goes to MC that's exactly what we do here step number two is to find a profit maximizing Q that's seventy six units step number three that information was given to us $25 step number four is to find ATC so ATC is 2961 once again are we profits losses or zero economic profits and once again because ATC is larger than the price we are facing some type of losses but why should the firm do should have shut down or should have continued producing take a look at the AVC and in this instance we know that ABC is actually less than the price so AVC less than the price and if this is gonna be the case the firm continues to operate so here we put operations continue and they're still gonna have losses but they're gonna do best to minimize their losses when they continue to operate when price is greater than ABC so therefore the profit maximizing point where minimizes its losses in this case it's gonna be producing at 76 units and that's gonna be the answer choice there and then finally was our last question at the toward making firm in the table faces on market price of $36 that's gonna maximize profits by doing what and once again we follow the same five-step pattern as before where is it going to get as close to 36 as a can you just use that same intuition does it make sense for me for the firm to continue on past these quantities right here you can say yes and that's gonna continue all the way to this point right here where they notice that okay if I move past 91 units the marginal cost becomes greater than marginal revenue so therefore I should stop right here where marginal cost is equal to $35 and 71 cents profit maximizing Q is 91 units profit maximizing P is 36 as we've already seen we notice that ATC is now less than the price so therefore but this is gonna be the case that ATC is less than the price the firm is gonna be earning some type of profits so positive profits in this instance so we don't have to worry about the extra decision that the firm has to make so therefore we notice that the firm is earning profits we can calculate the profit out if we wanted to we just take 36 minus 30 point to 2 and then multiply that difference by 91 we'll get the profits there but all the question is asking us is what's the profit maximizing Q and that's gonna be 91 units so as you can see from this example we will still continue to use the same five step patter for maximizing profits as we did with the graphical case except now are pretty specific numbers to it and when you put specific numbers to it we will encounter the case where our marginal revenue line is going to intersect the marginal cost at two different points and typically we do notice that hey the second intersection is gonna be our profit maximizing plug because it does make sense for the firm to continue on because the marginal revenue is greater than marginal cost as we move past from the first intersection to the second intersection so essentially this area right here is going to be the sort of additional profits or additional revenues that the firm is going to receive by producing here at Q star rather than Q zero so once again take a look at the problems that we have in the practice problems get more practice with the five-step pattern for maximizing profits both on the illustration on the graphical sense and also with specific numbers and then you'll be good to go we'll take a look at the transition from the short-run over into the long-run in the next video I'll see you guys there