Question

H) Why is the level of output where marginal revenue equals marginal cost called as the profit-maximizing output? prove it in a logical way

would be greatly appreciated if it is answered in 5sentences by your own

Answer 1

The profit is maximized at the point where MR = MC. Because the firm should continue to produce until marginal profit is equal to zero. We know

Marginal Profit = MR - MC

So, Marginal Profit will be equal to zero only when MR = MC.

Another justification is that , for a firm as long as producing an additional unit of output costs less than the revenue, the firm should continue to produce more, because it adds to the total profits.

On the other hand, when cost of producing an additional unit is greater than the revenue, the firm should stop production, because it reduces total profits.

Therefore, if the firm wants to maximize profit, it should produce the quantity of output, where MR = MC.