Question

Firms profit is maximized when ______________ is equal to __________ and when _____________ is rising.

Answer 1

A firm should continue production if Marginal Cost (MC) is less than or equal to Marginal Revenue (MR). i.e. until the point when MR is equal to MC.

It might be possible that MR curve may intersect MC curve at 2 points as shown in the figure below.

In such case we can see that at the right of point A MC is less than MR. So the firm can increase its profit by continuing production till point B at which again MR is equal to MC. Firm should not continue production after point B as MC of producing further units is more than MR. Thus firm should produce at point where MR is equal to MC and MC is increasing.

Ans: Firms profit is maximized when marginal cost is equal to marginal revenue and when Marginal cost is rising.