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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Expert Solution

Marginal revenue refers to a change in total revenue as a result of selling an additional unit of output. Marginal cost is the additional cost owing to the production of an additional unit of output. When marginal cost is greater than marginal revenue then it shows that the production of one more unit will not make any profit to the firm as the cost of producing one more unit of output will be more than revenue. So the firm will cut down its production. When Marginal revenue is greater than marginal cost then it shows that the production of one more unit will add more to the profit. So the firm will continue producing until marginal cost equals marginal revenue. Because producing one more unit of output after this point will make the marginal cost more than marginal revenue which will result in losses to the firm. So when marginal revenue is equal to marginal cost you can not increase the profit anymore.

Rahul Sunny answered 1 week ago

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marginal revenue equals marginal cost to maximize total revenue

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