Question

At the equilibrium level of output under the MR–MC approach, which pattern of MC and MR around the equilibrium is correct?

Options

• MC > MR before equilibrium and MC < MR after equilibrium

• MC = MR before and after equilibrium

• MC < MR before equilibrium and MC > MR after equilibrium

• MC > MR both before and after equilibrium

Answer 1

MC < MR before equilibrium and MC > MR after equilibrium

Explanation:

For maximum profit, MC is less than MR just before equilibrium and greater than MR just after equilibrium, with MC rising and cutting MR from below at equilibrium.