how to find the price ratio and Profit Max Combination?

Economics Sep 29, 2020

Expert Solution

Price ratio:

It is also known as P/E ratio. To calculate Price ratio we should divide the firm's current stock price by its earning per share or EPS. In case we don't have EPS then we can compute it by subtracting firm's preferred dividends paid from its net income, and then dividing the result by the number of shares outstanding.

Profit max combination:

Profit max combination and least cost are almost same except that marginal revenue product per dollar is used instead of marginal product per dollar. To figure out profit max combination there is formula given below;

(MRPL/PL=MRPN/PN=MRPC/PC)

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