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Q: Why is it that when a firms marginal revenue product equals the wage rate marginal revenue also equals the marginal cost?
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Firms will employ an input up to the point where?

The input's price equals its marginal revenue product


When marginal revenue equals marginal cost?

At this intersection point on a graph, firms will earn maximum profit, even if this point is under average total cost.


Why is the equality of marginal revenue to marginal cost essential to profit maximuzation in all of the market structures?

When Marginal Cost is below Marginal Revenue, profit is increasing. When Marginal Cost is above Marginal Revenue, profit is decreasing. Since the goal of firms is to maximise profit, they should produce at a level where the MR of producing another unit is equal to the Marginal Cost of producing another unit. Firms should keep producing until this point because there is a hidden profit in MC. This is because we are not taking into account the Accounting profit.


Why is marginal analysis involved in economics?

Economic theory makes much use of marginal concepts. Marginal cost, marginal revenue, marginal rate of substitution, marginal utility, marginal product, and marginal propensity to consume are a few examples. Marginal means on the margin and refers to what happens with a small change from the present position. It is the concept of economic choices to make small changes rather than large-scale adjustments. Marginal analysis is the key principle of profit-maximization in firms and utility maximization among consumers.


Why law of diminishing returns and return to scale might use in understanding the output decisions of firms in different industries?

show with example that if the marginal product is always decreasing the average product is always above the marginal product?

Related questions

Firms will employ an input up to the point where?

The input's price equals its marginal revenue product


When marginal revenue equals marginal cost?

At this intersection point on a graph, firms will earn maximum profit, even if this point is under average total cost.


Why is the equality of marginal revenue to marginal cost essential to profit maximuzation in all of the market structures?

When Marginal Cost is below Marginal Revenue, profit is increasing. When Marginal Cost is above Marginal Revenue, profit is decreasing. Since the goal of firms is to maximise profit, they should produce at a level where the MR of producing another unit is equal to the Marginal Cost of producing another unit. Firms should keep producing until this point because there is a hidden profit in MC. This is because we are not taking into account the Accounting profit.


When marginal revenue equal to marginal cost?

At this intersection point on a graph, firms will earn maximum profit, even if this point is under average total cost.


Why is marginal analysis involved in economics?

Economic theory makes much use of marginal concepts. Marginal cost, marginal revenue, marginal rate of substitution, marginal utility, marginal product, and marginal propensity to consume are a few examples. Marginal means on the margin and refers to what happens with a small change from the present position. It is the concept of economic choices to make small changes rather than large-scale adjustments. Marginal analysis is the key principle of profit-maximization in firms and utility maximization among consumers.


Why law of diminishing returns and return to scale might use in understanding the output decisions of firms in different industries?

show with example that if the marginal product is always decreasing the average product is always above the marginal product?


Explain why the P equals MC rule is the same as the MR equals MC rule for perfectly competitive firms?

Perfectly competitive firms are price takers. This means that they can sell as much or as little as they want, but only at the going market price. When this happens, the market price is the same as their marginal revenue. Thus, P=MC is the same as P=MR.


If marginal revenue is zero total revenue remains unchanged?

Yes. This is because when MR is at 0, TR is at is maximum. Generally firms produce at MR=MC, therefore if MR < 0, then MC > MR and firms will not produce at the this point. And so when MR = 0, this will be the total level of revenue achieved, and so total revenue remains unchanged


A perfectly competative firms marginal cost exceeds its marginal revenue at its current output To increase its profit the firm will?

To increase profit the firm will decrease output to a point where MC=MR. This is the Profit Maximisation point


Why is it that firms can earn profits in the long run in monopoly and oligopoly but not in monopolistic competition and perfect competition?

Because monopolistically competitive firms have an optimal production allocation at monopoly values: marginal revenue = marginal cost, marking-up to the demand function. When competition is not perfect, marginal revenue does not equal demand but is always below it on a Cartesian plane, so the optimal production value of a monopolistically competitive firm is both less and at a higher price than a perfectly competitive one.


Why the marginal revenues curve is always half of the demand curveexplain graphically and algebrically?

Firms in most cases opt to select prices in the elastic regions of their demand curve. This fact explains why marginal revenue curve is always below.


How are price and output determined under pure or perfect competition?

Price is determined by the market and Output level is the only choice the firm has to make. Since firms want to maximise profit, it will produce at a level where Marginal Cost equals Marginal Revenue. This is the profit maximisation pointUnder the perfect competition sellers will reduce prices in order to sell more than their competitors.