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is it ever possible to determine whether a firm actually maximizes its profits?discuss

is it ever possible to determine whether a firm actually maximizes its profits?discuss
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Answer #1

Yes , it is possible . Firms maximize profits using a simple formula . The MR ( marginal revenue ) should be equal to MC ( marginal cost ) for a firm to maximize profit .

The marginal revenue is simply the price of each unit of good sole in the market . It is revenue generated from the last unit of good sold . Usually it is constant because each unit is sold at identical price .

Marginal cost is the cost incurred to produce one additional unit of the product . So till the marginal cost is below MR the firm goes on producing . due to increasing marginal cost the MC will reach a point where it will be equal to MR . At this unit the firm has to stop .

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