Comparing marginal revenue to marginal cost

Question

Quizplus · Accepted Answer

Both (i) and (ii) are necessary to determine the profit-maximizing output level. Marginal revenue represents the change in revenue as a result of producing one more unit, while marginal cost represents the change in cost as a result of producing one more unit. In order to maximize profit, a firm should produce at the level where marginal revenue equals marginal cost (i.e., where the additional revenue from producing one more unit equals the additional cost of producing one more unit). Therefore, comparing marginal revenue to marginal cost is essential in determining the profit-maximizing output level. (iii) is not necessary for this specific decision.

Comparing Marginal Revenue to Marginal Cost