Question

ESSAY:

1. What is the relationship of utility and price?

2. Explain the concept of profit maximization when the marginal revenue equals marginal cost.

Answer 1

The price is a sum or amount of money at which a thing is valued, or the value which a seller sets on his goods in market, that for which something is brought or sold, or offered for sale equivalent in money or other of exchange current value or rate paid or demanded in market or in bart, cost.

The utility is used to modern modern worth or value. It's usage has evolved significantly over time.The term was introduced initially as a measure of pleasure or satisfaction.

The price a consumer is willing to pay for a good depend upon his marginal utility, which declines with each additional unit of consumption, according to the law of diminishing marginal utility. Therefore the price decreases for a normal good when consumption increases.

2.

The profit maximization says that, if a firm chooses to maximize it's profits, it must choose that level of output where marginal cost (MC) is equal to marginal revanue (MR) and the marginal cost curve is rising. It must produce at a level where MC=MR.

The profit maximizing choice for a perfectly competitive firm will occur at the level of output. Where marginal revenue is equal to the marginal cost -that is where MR=MC.

When marginal cost equals marginal revanue then profit is maximized. When marginal revanue is greater than marginal cost, that means creating one more product, would bring more in revenue than it would cost, so profit would increase.