Question

‏8. Discuss the rationale behind the principle “marginal revenue equal marginal cost" condition for profit maximization.

Answer 1

MC represents marginal (extra) cost caused by a firm when its creation raises by one unit. MR represents marginal (extra) revenue a firm gets from delivering one additional unit of yield. As a firm is attempting to augment its benefits, it needs to consider what happens when it changes its creation by one unit. The firm will obviously acquire an additional cost from delivering an additional unit, yet will likewise get revenue from that unit. In the event that the marginal cost is greater than the marginal revenue got, at that point the firm ought to understand that creating an additional unit of yield was not beneficial. The firm should in this manner chop down a portion of its creation. On the off chance that the marginal cost is littler than the marginal revenue, at that point it is gainful for the firm to deliver an additional unit of yield. The firm should keep on raising produce additional units of yield as long as the marginal revenue it gets from that unit surpasses the marginal cost. The firm should keep doing this until MC=MR, a point where they should keep creation steady, in light of the fact that delivering an additional unit beyong this point makes a higher marginal cost for the firm that it makes marginal revenue.At the point when marginal profit is sure at that point all out profit increments as q increments and when marginal profit is negative all out profit diminishes. Thua all out profit is amplified when MR=MC and marginal profit=0.