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Why must revenue equal variable cost in the short run and total cost in the long run to reach maximum profits?
Wiki User
∙ 13y ago
First, your question needs to be rephrased. In a perfectly competitive market where firms with the same product sell at the same price, Marginal Revenue (increase in revenue by producing another product) equals the price the product is sold. This marginal revenue (MR) needs to be greater than or equal to the variable cost (VC) in the short run, because if their MR < VC that means they are losing money for every unit they are producing. So in the short run it is better to not produce anything so you don't lose money (they would still lose money due to fixed costs, FC). In the long run MR needs to be greater than or equal to total cost (TC = VC + FC). If not, you lose money and it is best to stop producing and leave the market altogether so you do have VC or FC.
To maximize profits MR must equal MC, marginal cost, or how much it costs to produce another unit. If MR > MC, the firm can produce more because they would gain more revenue than it would cost. If MR < MC, the firm should produce less because it is costing them more to produce then they are receiving revenue.
Hope that answers both sides of your question.
Wiki User
∙ 13y ago
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Profits will be maximized when marginal revenue?
Profits will be maximized when marginal revenue is equal to marginal costs. This will only happen in cases where there are fixed costs.
A producers profits are maximized when marginal costs are?
equal to marginal revenue
In the long run a pure monopolist will maximize profits by producing that output at which marginal cost is equal to?
marginal revenue
In the long-run a pure monopolist will maximize profits by producing that output at which marginal cost is equal to?
marginal revenue
When profit is maximized in a perfectly competitive firm?
At the output level at which the slopes of the total revenue and total cost curves are equal, provided the firm is covering its variable cost
Profits will be maximized when marginal revenue?
Profits will be maximized when marginal revenue is equal to marginal costs. This will only happen in cases where there are fixed costs.
A producers profits are maximized when marginal costs are?
equal to marginal revenue
A producers profits are maximized when marginal costs are .?
equal to marginal revenue
Does contribution margin equal Sales-variable costs?
Contribution margin is computed as sales revenue minus variable expenses
In the long run a pure monopolist will maximize profits by producing that output at which marginal cost is equal to?
marginal revenue
In the long-run a pure monopolist will maximize profits by producing that output at which marginal cost is equal to?
marginal revenue
Why are profit maximize when marginal revenue is equal to marginal cost?
Profits are maximized when marginal costs equals marginal revenue because fixed costs are now spread over a larger amount of revenue. This means that total cost per unit declines and profits increase. Another way to say this is that this is the effect of scale. When marginal revenue equals marginal costs, in a growing revenue situation, you gain economies of scale and higher profits.
What is the meaning of shutdown point?
The shutdown point is the output level at which total revenue is equal to the total variable cost. Here the product price is also equal to its average variable cost.
What is the condition for maximum efficiency of a DC machine?
The condition for maximum efficiency of a d.c. machine is that VARIABLE LOSSES must be equal to CONSTANT LOSSES i.e., variable losses = constant losses..
What is the total revenue at break even point if Ace corporation's variable costs are equal to 43 percent of sales revenue and their fixed costs per month are 600000?
Revenue at BREAK EVEN point is $0.00
If selling prices sales mix and cost structure remain the same do profits and sales increase using variable costing?
Equal
How do you find the minimum and maximum points of a function?
Set the first derivative of the function equal to zero, and solve for the variable.
