Question

When marginal revenue equals marginal cost, a pharmaceutical firm will function as a “maximizing” firm. Explain why this happens. Use both algebraic and diagrammatic expositions. Does this rule apply to a health care provider? Explain.

Answer 1

In any form of market structure example Monopoly, Perfect competition, Oligopoly, Duopoly firm attain equilibrium when firm meets following criteria or condition.

• MC=MR and MR must cut MC from bellow.

Above graph showing the at point A MC< MR it is profitable to firm to produce up to Q where MC=MR and beyond point Q, B shows that MC greater than MR

Thus it is clearly shown that if firm producing beyond Q output it not profitable to the firm it is only at Q firm attain equilibrium.