Explore BrainMass

Explore BrainMass

    profit maximization condition

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Answer the following question in your own words without quoting anyone:

    In economics, when you plot cost and revenue on the Price-Quantity axis, the profit maximization condition is when marginal cost is equal to marginal revenue. This is a crucial notion to understand. Without it one can't effectively analyze profits. Does this make sense? Please explain your understanding of this concept.

    © BrainMass Inc. brainmass.com October 9, 2019, 10:09 pm ad1c9bdddf

    Solution Preview

    A firm should increase its output so long as the marginal revenue earned from additional units of production is greater than the marginal cost of those units. Marginal revenue is the additional revenue earned by selling one more unit of a product. Marginal cost is the additional cost incurred in producing one more unit of output. So long as MR > MC, profit grows. However, when MR < MC, profit shrinks. So firms ...