What are the definitions of marginal revenue? What is the definition of marginal
ID: 2428359 • Letter: W
Question
What are the definitions of marginal revenue? What is the definition of marginal cost?
What is the definition of profits?
What is the relationship between MR, MC and profit maximization?
If MR>MC, is a firm maximizing profits? Is the firm producing less or more than optimal?
What are transaction costs? What happens when government institutes price floors above the equilibrium price (e.g., minimum wages and other 'high' minimum prices)?
What is the “prisoners’ dilemma”? How is it related to agreements among few firms?
Explanation / Answer
Marginal revenue is the revenue received by selling an extra unit of output.
MR=TRn-TRn-1
Marginal cost change in the total cost due to producing an additional unit of output.
MC=TCn-TCn-1
Profit is the difference between TR and TC.
Profit=TR-TC
MR is downward sloping straight line in case of monopoly and horizontal line in case of perfect competition but MC is U shape.
The profit is maximised corresponding to the quantity where MR and MC interesects.
If MR>MC, then firm is earning profit but it is not maximising the profit. The profit will be maximised when MR=MC.
Hence if MR>MC, then firm is producing less because by producing more, it can maximise its profit.
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