Question

Verbally and graphically describe the Marginal Profit Curve(Mπ), If a firm produces a larger quantity of a product X, then

Answer 1

Above 2 graphs shows MR curve for 2 kind of firms (i.e. perfectly competitive firm and imperfectly competitive firm)

This is the additional revenue as units sold increases.

It can be seen that MR reduces are the Quantity sold increases in case of impertfly competitive firm.

Also, MR is constant and equal to price in case of perfectly competitive firm.

Above graph shows MC curve. (i.e. Marginal Cost)

Additional cost required to produce one more unit is MC.

Now it can be said that MC reduces first and then increases very sharply.

From all the above information Marginal Profit can be derived.

Marginal Profit = MR - MC

Consider perfectly competitive firm, Marginal profit should increase for initial quantites as MC decreases, then it decreases and becomes zero when MR = MC and then it gets negative as shown below.

For imperfectly competitive firm, as MR and MC both decrease initially, it can be said that marginal profit is almost similar, then it becomes zero and then goes negative as shown below.