ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The marginal revenue is the additional revenue added by increasing the quantity. This is also known as the additional revenue “at the margin.” Therefore, profit is maximized when marginal cost equals marginal revenue which is the same as saying when marginal profit equals zero.

Detailed explanation-2: -Why is profit maximised when MR = MC? At production levels of MR = MC, the difference between the total revenue and total cost is maximum which serves as our requirement for producer’s equilibrium and leads to profit maximization. Therefore, MC ˂ MR is a necessary condition for sustainable profit scenario.

Detailed explanation-3: -Profit maximisation is a process business firms undergo to ensure the best output and price levels are achieved in order to maximise its returns. Influential factors such as sale price, production cost and output levels are adjusted by the firm as a way of realising its profit goals.

Detailed explanation-4: -The profit-maximizing choice for a perfectly competitive firm will occur at the level of output where marginal revenue is equal to marginal cost-that is, where MR = MC.

Detailed explanation-5: -The profit-maximizing quantity will occur where MR = MC-or at the last possible point before marginal costs start exceeding marginal revenue. On Figure 4, MR = MC occurs at an output of 4. The monopolist will charge what the market is willing to pay.