Why do firms maximize profits where marginal revenuemarginal
Why do firms maximize profits where marginal revenue=marginal cost?
Solution
If MR>MC, it means each additional unit will add more to revenue than to cost. Therefore, we must not stop production.
If MR>MC, it means each additional unit is adding more ot MC than to MR. Therefore, we must not continue with production.
Hence profit is maximized where MC = MR but there is second condition which must also be fulfilled. MC must be rising after this unit.
