Question

From the marginal principle :

If possible choose the level at which the marginal benefit equals
the marginal cost

Why don't we choose the point where the MB>MC, is not that more profitable for the business?

Please explain.

Answer 1

Marginal principal states that increase the production if MB>MC and decrease the cost if its MB<MC.

Marginal benefit is the maximum amount that a consumer is willing to pay for the product. and Marginal cost is the cost which ccours in producing one more quantity of product.

Now, try to understand suppose that we are making some hamburger and you are ready to pay 10 dollar for one hamburger that is the maximum amount you are willing to pay. Here 10 dollar is the maximum amount you could pay. But some hamburger the fast food chain is producing the hamburger at 5 dollar. Now of course you will buy that burger and chain can make handsome amount of profit. Now there is a lot of scope for chain to increase the production of burger as benefit you can reap from the burger is greater than the cost of burger so it will produce more hamburgers. Now with more amount of hamburgers in the market your willingness to eat the hamburger will start to come down and now you no longer urge for the hamburger as you used to urge earlier. now the maximum amount you can pay is 7 dollar and firm can also produce burgers until marginal cost increases to 7 dollar. this is where equilibirium would come. firm won't produce anymore product as extra product marginal cost will surpass the benefit obtained from it and no one will buy it at that price.

So the most profitable point is MB=MC