Marginal Revenue and Marginal Cost

7.6 of The Economy 1.0 & The Economy #4

What does marginal revenue mean?

-The change in revenue seen by increasing the quantity by one extra unit.

When marginal revenue = marginal cost, what happens?

-The peak of the profit function is reached.

-Thus the same outcome as when MRS of the iso-profit curve = MRT of the demand curve.

How can marginal profit be expressed using MR and MC?

Marginal Profit = MR - MC

-If this is positive, you should boost output

-If this is negative, you should cut the output

-If this is zero, profit is maxed out.

If π = R(Q) - C(Q), where R(Q) is the total revenue function, what will the FOC say?

-Differentiating with respect to Q, and setting it to 0:

R’(Q) = C’(Q)

-LHS is simply the marginal revenue, because its the slope of the total revenue curve.

-RHS is simply the marginal cost, because its the slope of the total cost curve. Therefore:

MR = MC