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Economics problem

others 545 views 3 replies

Hello, here's an economics querry...

 For profit maximization, firms should continue producing more output until marginal revenue equals marginal cost. That’s the point where profits are maximized.

My question is, when MR=MC, marginal profit ie MR-MC=0. When marginal profit is zero, how can it be profit maximization ? ? 

Replies (3)
See..upto the point marginal profit is positive..the total profit is increasing..when marginal profit becomes zero..the total profit becomes stable..and the marginal does not contribute further to increase the profit..hence at the point wher3 marginal profut is zero.. toral profit reaches its maximum...and thereafter as marginal profit becomes negative, total profit starts falling.
It is the total profit that we are maximising...not the marginal profit!

When mr > mc total profit increases. Beyond a certain level of units, mr < mc total profit decreases. The equilibrium is when mr = mc. This is the point when profits are maximised. In terms of time line it's first mr > mc, then mr = mc and finally mr < mc.


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