What is MC=MR?
The short answer is that it is the profit maximisation output for a firm and it allows the firm to look at the next unit it produces. For that unit will the costs or revenue be higher? If revenue gained from the extra unit would be higher than the costs then the firm should produce that unit. If the costs of the next unit would be higher than the revenue then the firm should not produce htat unit if they are seeking to profit maximise.
The longer answer is that .....
Marginal Revenue (MR) and Marginal Cost (MC) are important concepts in economics, particularly when analysing the production decisions of firms. Let's break down each term:
Marginal Revenue (MR): Marginal revenue is the additional revenue a firm generates from selling one more unit of a good or service. In other words, it is the change in total revenue resulting from a one-unit increase in output. MR helps firms determine the optimal level of production, as it shows how much revenue they can expect to earn from producing and selling additional units.
Mathematically, Marginal Revenue (MR) can be calculated as:
MR = Change in Total Revenue / Change in Quantity
Marginal Cost (MC): Marginal cost is the additional cost a firm incurs from producing one more unit of a good or service. It is the change in total cost resulting from a one-unit increase in output. MC helps firms understand the cost implications of increasing production and plays a crucial role in their decision-making process.
Mathematically, Marginal Cost (MC) can be calculated as:
MC = Change in Total Cost / Change in Quantity
In the context of profit maximisation, firms will compare marginal revenue and marginal cost to make production decisions. According to the profit-maximising rule, a firm should increase production as long as MR is greater than MC. Conversely, the firm should decrease production if MR is less than MC. When MR equals MC, the firm has reached its optimal production level, maximising its profit.
The longer answer is that .....
Marginal Revenue (MR) and Marginal Cost (MC) are important concepts in economics, particularly when analysing the production decisions of firms. Let's break down each term:
Marginal Revenue (MR): Marginal revenue is the additional revenue a firm generates from selling one more unit of a good or service. In other words, it is the change in total revenue resulting from a one-unit increase in output. MR helps firms determine the optimal level of production, as it shows how much revenue they can expect to earn from producing and selling additional units.
Mathematically, Marginal Revenue (MR) can be calculated as:
MR = Change in Total Revenue / Change in Quantity
Marginal Cost (MC): Marginal cost is the additional cost a firm incurs from producing one more unit of a good or service. It is the change in total cost resulting from a one-unit increase in output. MC helps firms understand the cost implications of increasing production and plays a crucial role in their decision-making process.
Mathematically, Marginal Cost (MC) can be calculated as:
MC = Change in Total Cost / Change in Quantity
In the context of profit maximisation, firms will compare marginal revenue and marginal cost to make production decisions. According to the profit-maximising rule, a firm should increase production as long as MR is greater than MC. Conversely, the firm should decrease production if MR is less than MC. When MR equals MC, the firm has reached its optimal production level, maximising its profit.
MC = MR in perfect competition |
MC = MR in imperfect competition |
Profit maximising output (MR=MC) in perfect competition.
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Profit maximising output (MR=MC) in imperfect competition.
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