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What happens if Mr is lower than MC?

When marginal revenue is less than the marginal cost of production, a company is producing too much and should decrease its quantity supplied until marginal revenue equals the marginal cost of production.
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What should a firm do if Mr is less than MC?

If MR = MC, then the firm should stop producing the additional unit. As the additional unit's MC would be higher according to law of diminishing returns, MR would be less than MC; that is, the firm would loss profit by producing additional units.
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What happens when MC is greater than MR?

When the production level reaches a point that cost of producing an additional unit of output (MC) exceeds the revenue from the unit of output (MR), producing the additional unit of output reduces profit. Thus, the firm will not produce that unit.
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What happens if Mr is less than MC to maximize profit?

If the monopoly produces a lower quantity, then MR > MC at those levels of output, and the firm can make higher profits by expanding output. If the firm produces at a greater quantity, then MC > MR, and the firm can make higher profits by reducing its quantity of output.
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What should a firm do if MC is greater than MR?

If marginal cost is greater than marginal revenue, the firm can increase its profit by decreasing output. c. At the profit-maximizing level of output, marginal revenue is equal to marginal cost.
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MR=MC The Profit Maximization Rule

What is the Mr MC rule?

Graphical Derivation of the MR = MC Rule. Profit is at maximum when marginal revenue equals marginal cost. MR is the additional revenue obtained from selling one more unit. MC is the additional cost incurred from selling one more unit of output. If MR exceeds MC, expand production.
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What is the relationship between Mr and MC?

The Marginal Revenue-Marginal Cost Approach

MR is the addition to TR from the sale of one more unit. MC is the addition to TC when an additional unit is produced. Thus when MR=MC, TR-TC becomes maximum for maximum profit. If MR exceeds MC, then the producer will continue producing as it will add to his profits.
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What does it mean when marginal cost is less than marginal revenue?

If a company's marginal revenue is less than the marginal cost of producing more units, it's an indication that the company is producing too much. On the other hand, if a company's marginal revenue is greater than its marginal cost, it indicates that the company is not producing enough units.
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What does it mean when marginal benefit is less than marginal cost?

If the marginal benefit is less than the marginal cost, the quantity should be reduced. Net benefit is maximized at the point at which marginal benefit equals marginal cost.
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Is the profit maximized when the difference between MR and MC is greatest?

The profit maximized where marginal revenue is equal to marginal cost because when MR is more than MC, the firms produce more as they can earn more profit, and when MR is less than MC, the firms produce less as they can incur losses. Thus, profit maximization level is where both these are equal.
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How do you use MR and MC to determine profit maximization?

The Profit Maximization Rule states that if a firm chooses to maximize its profits, it must choose that level of output where Marginal Cost (MC) is equal to Marginal Revenue (MR) and the Marginal Cost curve is rising. In other words, it must produce at a level where MC = MR.
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What does the Mr MC point determine in determining the equilibrium of a firm?

Conditions for the equilibrium of a firm

They must ensure that the marginal revenue is equal to the marginal cost (MR = MC). If MR > MC, the firm has an incentive to expand its production and sell additional units. If MR < MC, the firm must reduce the output since additional units add more cost than revenue.
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Why profit is maximized when MC MR?

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.
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Why is Mr lower than demand in monopoly?

This is because the price remains constant over varying levels of output. In a monopoly, because the price changes as the quantity sold changes, marginal revenue diminishes with each additional unit and will always be equal to or less than average revenue.
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What should a firm do if their marginal revenue is less than their marginal cost in a perfectly competitive market?

When the marginal revenue falls below the marginal cost (MR<MC), the firm should decrease its output in order to increase its profit.
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What happens if the marginal benefit is greater than the marginal cost?

If marginal benefit exceeds marginal cost, resources use will be more efficiently if the quantity is increased. If marginal cost exceeds marginal benefit, resource use will be more efficiently if the quantity is increased.
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What does it mean when the marginal cost is greater than the marginal benefit?

Answer and Explanation: When marginal cost is greater than the marginal benefits: it implies that economic benefit is less than the cost of benefits. This means people are paying more to achieve an extra unit of benefits.
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What happens when marginal cost is less than average total cost?

When the marginal cost is less than the average cost, the average cost falls. When the marginal cost is greater than the average cost, the average cost rises, and the two curves are equal at the point of intersection P.
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Why is MC and MR important?

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.
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What can Mr MC determine?

Both large and small businesses can examine their marginal revenue to determine their level of earnings based on extra output units sold. Hence, companies seeking to maximize profits must increase their production until marginal revenue equals marginal cost (MR=MC).
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What is the equilibrium of a firm by MC and MR?

It is in the interest of the firm to produce more and add to profits. Therefore, only that output level at which MC= MR, and beyond which MC >MR, is the equilibrium.
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Who does the Mr MC rule apply to?

The marginal revenue equal to a firm's marginal cost indicates the profit-maximizing condition. Through this condition, the firm decides the quantity and price it should charge to maximize its profit. The MR = MC rule applies to all market conditions in an economy.
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What rules in terms of MR and MC are used to determine the profit?

The Right Formula

In economics, the profit maximization rule is represented as MC = MR, where MC stands for marginal costs, and MR stands for marginal revenue. Companies are best able to maximize their profits when marginal costs -- the change in costs caused by making a new item -- are equal to marginal revenues.
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Why marginal cost should be equal to marginal revenue?

If marginal cost and marginal revenue are equal, your business has reached its optimal production level. At this level, efficiency has reached its peak, and you've maximized profits.
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Why equilibrium is not struck when Mr is greater than MC?

Profits will increase as long as MR exceeds MC and profits will fall if MR is less than MC. So, equilibrium is not achieved when MC < MR as it is possible to add to profits by producing more. A producer is also not in equilibrium when MC > MR because the benefit is less than the cost. Was this answer helpful?
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