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Click on the link below and read
the answer to these questions.
- Why must MC=MR to
achieve the maximum profit or to have the lowest
loss?
- Why must Marginal Cost be equal
to Marginal Revenue? Won't that earn nothing?
ANSWER: Whenever you are asked
questions like:
- "what quantity will be
produced?",
- "what price will be charged?",
- "what is the profit maximizing
quantity?",
- "what is the equilibrium
quantity?", etc.,
the first thing you do is
calculate MR and MC.
Then, as long as the firm earns more
(MR) than it costs (MC) they will produce. They will produce
ALL where MR>MC, up to where MR=MC, but never where
MR<MC.
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