Question

Is it enough to say that profit is maximised when MC = MR?

Answer 1

1. First Condition (Necessary): MC = MR This is the basic rule of profit maximisation:
   • If MR > MC, producing more adds to profit.
   • If MC > MR, producing less saves costs and increases profit.
   • Hence, MC = MR indicates no incentive to produce more or less, i.e., profit is at a maximum or minimum.
   • Point R: Firm just covers costs (break-even), not profit-maximising.
   • Point K: True profit-maximising output.

1. Second Condition (Sufficient):
   1. The MC curve is rising (i.e., has a positive slope) when it intersects the MR curve.
   2. At this point, increasing output further would increase MC more than MR, hence reducing profits, confirming it's a maximum.
   3. If MC cuts MR from above, like at point R, its a minimum or break-even, not a profit maximum.