Profit Maximization Rule (MR = MC)
Definition
The profit maximization rule states that a firm should produce at the quantity where marginal revenue (MR) equals marginal cost (MC). This ensures that the firm is maximizing its profits by producing an optimal level of output.
Related terms
Marginal Revenue: Marginal revenue refers to the change in total revenue resulting from selling one additional unit of output. It helps determine how much extra income a firm generates by increasing production.
Marginal Cost: Marginal cost represents the change in total cost due to producing one additional unit of output. It helps determine how much it costs a firm to increase production by one unit.
Optimal Output Level: The optimal output level is the quantity at which a firm maximizes its profit. It occurs when marginal revenue equals marginal cost, following the profit maximization rule.
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Additional resources (1)
AP Microeconomics - Unit 3 Overview: Production, Cost, and the Perfect Competition Model
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