This year, I felt my answer to that was just as unsatisfying as all other semesters. I've tried to explain this many ways, and I've concluded the issue centers around mathematics. Why don't you give it a try. The best answer will get 2 points extra credit towards your midterm.
Wednesday, October 26, 2011
MC = MR Competition
Every semester the question gets asked. Why would a firm produce a good when the MC=MR? It wouldn't make a difference to profit, so why is there an equal sign in the equation? Generally students understand that when MCMR you should decrease output. But why produce the good when they are EXACTLY equal?
This year, I felt my answer to that was just as unsatisfying as all other semesters. I've tried to explain this many ways, and I've concluded the issue centers around mathematics. Why don't you give it a try. The best answer will get 2 points extra credit towards your midterm.
This year, I felt my answer to that was just as unsatisfying as all other semesters. I've tried to explain this many ways, and I've concluded the issue centers around mathematics. Why don't you give it a try. The best answer will get 2 points extra credit towards your midterm.
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2 comments:
A firm produces output up to the point where MC=MR because that is the profit maximizing point. For every good where marginal revenue exceeds Marginal cost you have profit. Therefore produce up to the point where your last unit of output is MC=MR.IF MC>MR you are loosing money, and when MR>MC you are obviuosly making money:):):) we all love money
too add, your magrinal revenue on your last two units of output might be for the first tiem MC of 1 and MR of 2, where MC<MR=1 a profit and then on the last item you have MC of 2 and MR of 2 which is the MC=MR. MC on the last item raised to 2 because to produce the last unit of output a firm has to increase Labor costs and a profit seeking firm will not produce output past this point.
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