Comparing marginal revenue to marginal cost i) reveals the contribution of the last unit of production to total profit.
Ii) is helpful in making profit-maximizing production decisions.
Iii) tells a firm whether its fixed costs are too high.

Question

Quizplus · Accepted Answer

Comparing marginal revenue to marginal cost is important in determining the profit-maximizing level of production. If marginal revenue exceeds marginal cost, the firm should produce more units to increase profits, and if marginal cost exceeds marginal revenue, the firm should produce fewer units to increase profits. Therefore, statement i) and ii) are correct. However, it does not give any information about fixed costs, so statement iii) is incorrect.

Comparing Marginal Revenue to Marginal Cost I) Reveals the Contribution