Ok, I know this concept is at the basis of econ, but this is my third time through this same material counting various college coursework, etc…and it still doesnt make intuitive sense. I understand that MC=MR is law, but i dont understand for the life of me why someone would want to produce at that point. Where I lose it is with respect to profit. If company a receives 300.00 for sexywidget#4, but it costs 240.00 to produce, why would I want to continue to drive up the cost of production until it costs 300.00 a pop to make? Is it because not every unit had that cost and you made money on all the ones prior, like in other words they don’t all cost 300 each, only the last one? Or on the other hand is the profit margin included in the marginal costs as a buffer factor. It seems like one would want to produce at 2.80 a unit when he could get 3.00 or whatever and leave that margin in place. Confused…I just cant make it intuitive for some reason…
Thannks very much for that response, but respectfully, that is the same information i have seen many times and doesnt really address my question. In the example on the wiki, it explains profit as the price area above ATC, but according to theory one of two thigns will happen. either 1. The firm will continue to produce widgets until MC=MR and price, ATC, MR, and MC will all intersect at the same point (equilibrium) Or 2. Other firms will enter the market and increase supply until all points intersect as described above. My question was regarding producing where MC=MR. Why would anyone want to do this if the cost of each unit is the same as the sale price? Why would one be incensed as in my outcome one to keep driving production up instead of leaving MC
rolo550 Wrote: > > Basically what i am asking is it because if the > 300th unit reached MC=MR that every other unit > (299 and less) actually had profit on them and > this is the very last one that can be produced? Yes
We’re talking marginal, not absolute. Think of it as an optimal way of conducting business. My question was regarding producing where MC=MR. Why would anyone want to do this if the cost of each unit is the same as the sale price? Why would one be incensed as in my outcome one to keep driving production up instead of leaving MC
Basically what i am asking is it because if the 300th unit reached MC=MR that every other unit (299 and less) actually had profit on them and this is the very last one that can be produced? yes… after certain point MR ll be having negative values…
All I could think of is that theoretically no one would want to produce when MC=MR but practically it is hard for produce to measure and time exactly when MC & MR actually equals… so they just keep trying untill there’s no juice out of it…
- For all the quantity levels where MR>MC, demand for the product is elastic and it will profitable for firms to increase the supply and earn more revenues. 2) For all the quantity levels where MR< MC, demand for the product is inelastic and higher supply level means that cost incurred is more then revenues earned. 3) Quantity level at which MR =MC elasticity of demand is equal to one. Demand for the product is equal to supply. Economic Profit calculations depend on the position AC curve and Market Structure i.e. price charged under perfect competition is different from monopoly or the oligopoly.