Answer to Question #103163 in Macroeconomics for Athur

Question

Economists say that firms maximise profit by producing at a level of output where marginal cost is equal to marginal revenue. The owner of a firm respond, "That's a lot of nonsense. I do not even know what marginal revenue and marginal cost mean. How can I be doing something I don't even know about?" How would you react to this response?

Answer 1

Marginal product of labor, marginal revenue product of labor, and profit maximization. The general rule is that the firm maximizes profit by producing that quantity of output where marginal revenue equals marginal cost. The profit maximization issue can also be approached from the input side