A firm maximizes profit by producing at the quantity where marginal revenue equals marginal cost. This occurs because: 1) Marginal revenue is the change in total revenue from selling one more unit, while marginal cost is the change in total cost from producing one more unit. 2) When marginal revenue exceeds marginal cost, the firm can increase profits by producing more units. But when marginal cost exceeds marginal revenue, profits decrease with additional production. 3) Therefore, profit is maximized at the quantity where the two margins are equal, as additional production beyond this point leads to losses rather than gains.

1. Group 6: III-ACSAD Reported By: Arias, Kristine De Jesus, Relly

3. Total Cost The cost of all factors of production. Total Revenue The total amount of money that the firm receives from sales of its product or other sources.

10. (This is complicated but very useful to compare profit maximization under different market condition) Stage1: To find profit maximizing output, we use MC & MR curves. To maximize profit Marginal Revenue must be equal to Marginal Cost. i.e. MR=MC Why profit maximize when MR=MC? To find out the answer to this question, observe when MR=/= (not equal to) MC. MC MR 1 3 2 5 3 10 4