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Why are profit maximize when marginal revenue is equal to marginal cost?
Wiki User
∙ 13y ago
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.
Wiki User
∙ 13y ago
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How do you find a monopolist's profit maximising...?
The monopolist's profit maximizing level of output is found by equating its marginal revenue with its marginal cost, which is the same profit maximizing condition that a perfectly competitive firm uses to determine its equilibrium level of output. Indeed, the condition that marginal revenue equal marginal cost is used to determine the profit maximizing level of output of every firm, regardless of the market structure in which the firm is operating.
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.
If a firm can maximize its profit by producing output where price is equal to its marginal cost in which type of market is the firm operating?
The firm is operating in Perfect markets. In perfect markets (Perfect competitions), the firm can maximize its profit when its MC is equal with its MR. And in perfect markets, usually the following condition is true: (MR = AR = P). So, in equilibrium which is also the profit maximizing point for a firm, the following condition is a must: MR = AR = P = MC.
Does supply equal marginal cost?
Not that I know of. Average cost does - in the form of a labour market
Gross vs net income?
Gross and NetGross refers to the total and Net refers to the part of the total that really matters.Gross vs Net IncomeIn accounting, for a P&L (profit and loss statement, Gross profit, or Gross income, or Gross operating profit is the difference between revenue and the cost of making a product or providing a service, before deducting overheads,payroll, taxation, and interest payments. Net profit is equal to the gross profit minus overheads minus interest payable plus one off items for a given time period.Gross Margin vs Net MarginGross margin is the ratio of gross profit to revenue. Net margin is the ratio of net profit to revenue.Gross is the profit from the transaction without deduction. Net is the profit from the transaction after deducting cost of goods and cost of the sale (manpower, taxes, rent, etc.)
The level of profit maximizing output is reached when 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
In the long-run a pure monopolist will maximize profits by producing that output at which marginal cost is equal to?
marginal revenue
The equality of marginal revenue and marginal cost is essential for profit maximization in all market structures because if?
Marginal revenue and marginal cost are equal, any other output level will result in reduced profit.
What does profit maximizing quantity of output mean?
Its the level of production where marginal cost is equal to marginal revenue.
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.
How do you increase gross profit when sales increase but gross profit does not?
Your mariginal revenue must equal your marginal cost.
When can monopolist earn an economic profit?
A monopolist earns economic profit when the price charged is greater than their average total cost. To maximize profits, monopolies will produce at the output where marginal cost is equal to marginal revenue. To determine the price they will set, they choose the price on the demand curve that corresponds to this level of production.
A monopolist will set its production at a level where marginal cost is equal to?
A monopolist will set production at a level where marginal cost is equal to marginal revenue.
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.
How do you find a monopolist's profit maximising...?
The monopolist's profit maximizing level of output is found by equating its marginal revenue with its marginal cost, which is the same profit maximizing condition that a perfectly competitive firm uses to determine its equilibrium level of output. Indeed, the condition that marginal revenue equal marginal cost is used to determine the profit maximizing level of output of every firm, regardless of the market structure in which the firm is operating.
A producers profits are maximized when marginal costs are?
equal to marginal revenue
