Why is the level of output where marginal revenue equals marginal cost called as the profit-maiximizing output under either perfect competition or monopoly ? prove it in a logical way
MC stands for marginal (extra) cost incurred by a firm when its
production raises by one unit. MR stands for marginal (extra)
revenue a firm receives from producing one extra unit of
output.
As a firm is trying to maximise its profits, it needs to consider what happens when it changes its production by one unit. The firm will of course incur an extra cost from producing an extra unit, but will also receive revenue from that unit.
If MC > MR then firm will realise that by producing an extra unit it is not earning any profit. This means that firm should cut down the production. If MC < MR then firm can produce extra unit as it will help it to earn more profits.The firm should continue to raise produce extra units of output as long as the marginal revenue it receives from that unit exceeds the marginal cost. The firm should continue doing this until MC=MR, a point at which they should keep production constant, because producing an extra unit beyond this point creates a higher marginal cost for the firm that it creates marginal revenue.
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