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What is the MC=MR Rule? To what market structures does this Rule apply
to firms in all types of industries
Expert answered|danimai|Points 1220|
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Asked 5/27/2012 9:52:58 AM
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What is the MC=MR Rule?
Weegy: Marginal Cost (MC): The change in total cost as the output level changes one unit. Marginal Revenue (MR): The change in total revenue from the sale of one additional level of output. (More)
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Expert Answered
Asked 5/27/2012 9:42:56 AM
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Identified market structures the MC=MR Rule applies to User: Explained the MC=MR Rule
Weegy: MR = MC A firm’s profit is defined as its total revenue minus its total cost. In symbols, p (Q) = R(Q) - C(Q). [ A firm that wishes to maximize its profits may find the corresponding output by differentiating p (Q) with respect to output and finding the output that equates the derivative to zero: dp (Q)/dQ = dR(Q)/dQ - dC(Q)/dQ = MR - MC = 0. That is, profit maximization requires that, if the firm chooses to produce anything at all, it should equate marginal revenue and marginal cost. In the specific case of competitive firms, this takes the form P = MC. The second-order condition is: - PQ* - (FC + VC(Q*)) = p (Q*). Dividing both sides of this inequality by Q* and rearranging, the firm maximizes profit at Q = 0 if and only if P < , that is, if and only if the firm’s price is less than its average variable cost at the MR = MC output. Since average variable cost is equal to marginal cost at the former’s minimum, we can state the complete short-run profit-maximizing rule as follows: produce at the output for which MR = MC, provided price is greater than minimum average variable cost; otherwise shut down. to understand the formula visit this website ] (More)
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Asked 5/27/2012 9:54:31 AM
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