Question

In terms of MR and MC approach, the condition for profit maximisation is ______.

Options

• where MC =MR

• where MC curve cuts the marginal revenue from above

• MC curve intersects the marginal revenue from below

• none of these

Answer 1

In terms of MR and MC approach, the condition for profit maximisation is MC curve intersects the marginal revenue from below.

Explanation:

Under the Marginal Revenue Marginal Cost approach, a firm maximises profit at the level of output where MR = MC, and the MC curve cuts the MR curve from below. This means that before this point, MR is greater than MC (producing more increases profit), and after this point, MC exceeds MR (producing more reduces profit). Therefore, when MC intersects MR from below, it ensures that the firm is operating at the highest possible profit level, the equilibrium output.