Answer to Question #195456 in Macroeconomics for ahsan

Question

Determine the best level of output for the above question by the MR and MC approach.

Answer 1

Here is the process of determining the best level of output for the above question by the MR and MC approach.

Marginal revenue is the additional revenue generated for every single additional unit of product sold. We can calculate the same by differentiating total revenue with respect to the quantity.

That is;

$MR=dT_R/dQ$

Marginal cost is the additional cost incurred for producing every single additional unit of product. It's calculated by differentiating the total cost with respect to quantity.

That is;

$MC=dT_C/dQ$

The best level of output occurs when Marginal revenue equals marginal cost.

i.e. $MR=MC$

At this point, profit is maximized and hence it's seen as the best level. On solving you would get the optimal level of output.