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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

If a firm produces the quantity of output at which MR = MC, does it necessarily earn profits?

To determine

Whether MC=MR is necessary condition to earn profit.

Explanation

The condition MC=MR (marginal cost is equal to marginal revenue) is not necessary to earn profit. The firm’s profit depends upon the correlation between the price level (P) and average total cost (ATC). If the price is greater than the average total cost and the difference between total revenue (TR) and total cost (TC) is a positive number, it means that the firm earns a profit. The price level in the market multiplied by the quantity of goods is the total revenue, and the average total cost multiplied by the quantity is the total cost of the firm

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