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What should the firm do if marginal revenue is greater than marginal cost?
If a firm's marginal revenue is greater than its marginal cost, it should increase production to maximize profits.
A person should consume more of something when its marginal?
benefit exceeds its marginal cost.
What is the relationship between marginal cost and marginal revenue in determining optimal production levels?
The relationship between marginal cost and marginal revenue in determining optimal production levels is that a company should produce at a level where marginal cost equals marginal revenue. This is because at this point, the company maximizes its profits by balancing the additional cost of producing one more unit with the additional revenue generated from selling that unit.
What is the relationship between marginal revenue and marginal cost in determining the optimal level of production for a firm?
The relationship between marginal revenue and marginal cost in determining the optimal level of production for a firm is that the firm should produce at a level where marginal revenue equals marginal cost. This is because at this point, the firm maximizes its profits by balancing the additional revenue gained from producing one more unit with the additional cost of producing that unit.
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.
What should the firm do if marginal revenue is greater than marginal cost?
If a firm's marginal revenue is greater than its marginal cost, it should increase production to maximize profits.
A person should consume more of something when its marginal?
benefit exceeds its marginal cost.
When an organization can get optimal production?
this is obtained when a firm equates its marginal revenue to its marginal cost.At a level of output where MR exceeds MC,then the firm should increase output since the addition to revenue is greater than the addition to revenue.Where a firm's MR is less than its MC,the firm should lower its output since the addition to costs is greater than the addition to revenue.
If marginal revenue is greater than marginal cost the firm should?
If MR is greater than MC, the firm should increase their production. The ideal amount of production is determined by allowing the marginal cost to equal the marginal revenue.
What is the relationship between marginal cost and marginal revenue in determining optimal production levels?
The relationship between marginal cost and marginal revenue in determining optimal production levels is that a company should produce at a level where marginal cost equals marginal revenue. This is because at this point, the company maximizes its profits by balancing the additional cost of producing one more unit with the additional revenue generated from selling that unit.
What is the relationship between marginal revenue and marginal cost in determining the optimal level of production for a firm?
The relationship between marginal revenue and marginal cost in determining the optimal level of production for a firm is that the firm should produce at a level where marginal revenue equals marginal cost. This is because at this point, the firm maximizes its profits by balancing the additional revenue gained from producing one more unit with the additional cost of producing that unit.
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.
Saying the marginal costs are greater than the marginal benefits is the same as saying?
Marginal costs and marginal benefits are discussing the conditions for profit maximization. This statement can only have further explanation if it is clarified under circumstantial economic conditions. One of the conditions is that the firm is not a monopoly and that there is competition that keeps the price of the good at a single price. Another condition is that there are diminishing returns to labor and production. This means that resources are scarce for production so it becomes more costly to produce more because there are more constraints to resources and there is a limited labor skill pool. In a competitive market the wage is also assumed to be equal for everyone who is employed to do the same job. Thus, if the marginal costs are greater than the marginal benefits then the profit maximizing equation for a firm or individual is not in balance. The profit maximizing condition for a firm or individual is marginal costs equal marginal benefits. For example in the context of a firm, the marginal costs of producing is the wage it must pay to each extra worker it hires and the benefits are the goods that the worker produces for the firm to sell. Assuming that all workers are given the same wage, the firm should hire as many workers until the marginal revenue the worker produces (Marginal product*price) is equal to the wage. This implies price important because price determines how much revenue the worker makes from the product. If the firm is producing where marginal cost is above marginal benefit the firm is losing money and should get rid of some workers. If the firm has control over the price, like in a monopoly, then the profit maximization condition is a little different. In the case of a monopoly the demand curve is not the same as the marginal revenue curve. This is because in a monopoly the firm has to decrease price in order to sell more of the good because they are the only supplier. Marginal revenue is derived from the demand but the profit maximization condition is still marginal cost equals marginal benefits but marginal benefits does not equal the demand curve.
A manager urgues that output should be expanded so long as average revenue exceeds average cost Does this make sense to you?
This strategy is incorrect because they should decide the optimal quantity on the marginal revenue and marginal costs rather than the average revenue and average costs. It may not hold that the average revenue being higher than the average cost would lead to profits for the firm. To decide if they should produce an additional product, the firm should consider the additional cost involved with the production of this extra cost and the additional revenue incurred from the sale of this product. If this marginal revenue exceeds the marginal cost, then the firm should produce that additional unit. This decision is to be taken at all levels of output, and the firm should produce until the point where MR=MC.
Should a monopolistically competitive firm take into account it's fixed costs when deciding how much to produce?
No. A monopolistically competitive firm should produce up to the point where marginal revenue equals marginal cost.
What is the golden rule of profit maximization?
To maximize profit or minimize loss, a firm should produce the quantity at which marginal revenue equals marginal cost; this rule holds for all market structures
Equilibrium of firm under Perfect competition using MR and MC approach?
Equilibrium of Firm: MR - MC ApproachProfit maximization is one of the important assumptions of economics. It is assumed that the entrepreneur always tries to maximize profit. Hence the firm or entrepreneur is said to be in equilibrium if the profit is maximized. According to Tibor Sitovosky "A market or an economy or any other group of persons and firms is in equilibrium when none of its member's fells impelled to change his behavior". Naturally, the firm will not try to change its position when it is in equilibrium by maximizing profit.There are two approaches to explain the equilibrium of the firm regards to profit maximization. They are - total revenue-total cost approach and marginal revenue-marginal cost approach. Here we concentrate only on MR - MC approach.The equilibrium of firm on the basis of MR - MC approach has been presented in the table belowAccording to MT -MC approach, when marginal revenue equals marginal cost the firm is in equilibrium and gets maximum profit. Hence, a rational producer determines the quality of output where marginal revenue equals marginal cost.The difference between total revenue and total cost is highest 210, at four units of output. At this output, both marginal revenue and marginal cost are equal, 80. Hence profit is maximized. The firm is in equilibrium. It should be noted that the table relates to imperfect competition, when price is reduced to sell more.The following two conditions are necessary for a firm to be in equilibrium.(a) The marginal revenue should be equal to marginal cost.(b) The marginal cost curve should cut marginal revenue curve from below.The equilibrium of a under to MR - MC approach has been presented in figure:-The figure depicts the equilibrium of a firm under perfect competition. The same is applicable to the firms under imperfect competition. The only difference is that the AR & MR curves under imperfect competition are different and they are downward sloping.In the figure 'OP' is the given price. Since, under perfect competition, average revenue equals marginal revenue, the AR and MR curves are horizontal from P. The profit-maximizing output is OM. Here, marginal revenue and marginal cost are equal. It is because MC and MR curves intersect each other at point E. The firm earns profit equal to PEBC.The first condition necessary for firm's equilibrium is that marginal cost should be equal to marginal revenue. But this is not a sufficient condition. It is because the firm may not be in equilibrium even if this condition is fulfilled. In the figure, this condition is fulfilled at point F. but the firm is not in equilibrium. The profit is maximized only at output OM which is higher than output ON.The second condition necessary for equilibrium is that the marginal cost curve must cut marginal revenue curve from below. This implies that marginal cost should be rising at the point of intersection with MR curve. Hence, both the conditions have been fulfilled at point E. In the figure, MC curve cuts MR curve from at point F from above. Hence, this point cannot be the point of stable equilibrium. It is because before that point marginal cost exceeds marginal revenue. It shows that it is not reasonable to increase output. After point F, the MR curve lies above MC curve. This shows that it is reasonable to increase output.
