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What two things does a firm want to set equal if they want to maximize profits?...

What two things does a firm want to set equal if they want to maximize profits? Why? Which one acts as a demand curve for the firm and which one as a supply curve?

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Expert Solution

  • When a firm wants to maximize profits, it sets its marginal revenue equal to marginal cost so that they can produce more at any price and earn super normal profits that allows them to maintain their position in the market in long run.
  • The point at which marginal revenue equals the marginal cost, is known as a profit maximization point. At this point the firms are able to set their profit maximizing prices and quantities that can help them in maximizing profits.
  • The marginal cost acts as a supply curve for all prices above the average variable cost as it indicates the cost incurred for every unit produced and sold at every price. While the Marginal revenue acts as a demand curve for the firm because the demand curves and marginal revenue curves are affected by same factors.

Rahul Sunny answered 2 years ago
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