I am trying to figure out these last three questions and I provided some study notes of mine. Could someone please provide me with thorough and correct explanations for these three questions. Thank you!
1. Whenever MR is more than MC, it means that the firm can increase profits by increasing output. If it is less, then the firm can increase profits by decreasing output. Thus the firm settles at MC=MR so that it has no incentive either to increase or decrease output.
Here is an example:
Output 1 2 3 4 5 6 7 8 9
MC 10 11 13 16 20 25 31 38 48
MR 50 45 40 35 30 25 20 15 10
The profit maximizing level of output occurs when marginal cost is equal to marginal revenue. This occurs at an output of six units, when both marginal cost and marginal revenue is 25. If the firm continues to produce after this point, its profit will decline by 11, since MC is 11 greater than MR at an output of 7.
The MC curve is a U, and here we see that it ...
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