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Why is the level of output at which marginal revenue equals marginal cost the profit maximizing...

Why is the level of output at which marginal revenue equals marginal cost the profit maximizing output?

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Answer #1

When MC=MR, the firm is maximizing profits or the difference between total revenue and total cost is maximum

If the firm's MC exceeds MR, then it means that the firm is overproducing and incurring loss at each additional unit it sells and it can increase its profits by reducing the output.

If the firm's MC is below the MR, then it means that the firm is underproducing and can increase its profits by increasing the output as it is making profits on each additional unit it sells.

The total profit will reach its maximum level when MR=MC as here marginal profit is equal to zero.

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