Please Give All Answer Q1: If a company wants to maximize its profits the main c
ID: 1102352 • Letter: P
Question
Please Give All Answer
Q1: If a company wants to maximize its profits the main condition is marginal revenue equals marginal cost (MR = MC), why?
Q2: Illustrate the relationship between the average cost (AC) and marginal cost (MR) with using suitable graph.
Q3: In monopolistic market, how can monopoly maximize its profits? Explain the steps with using a graph and conclude the formula which computes the value of profit.
Q4: The interest rate in the market 10% per annum, and you want to receive $1100 after one year. What is the amount you have to pay now?
Q5: What is Lerner Index, write its formula in perfect competition and monopoly.
Explanation / Answer
Question 1
Marginal revenue means the addition made to the total revenue by producing and selling an additional unit of output and marginal cost means the addition made to the total cost by producing an additional unit of output.
Now, a firm will go on expanding its level of output so long as an extra unit of output adds more to revenue than to cost, since it will be profitable to do so.
The firm will not produce an additional unit of the product which adds more to cost than to revenue because to produce that unit will mean losses.
In other words, it will pay the firm to go on producing additional units of output so long as the marginal revenue exceeds marginal cost.
The firm will be increasing its total profits by increasing its output to the level at which marginal revenue just equals marginal cost.
It will not be profitable for the firm to produce a unit of output for which marginal cost is greater than the marginal revenue.
The firm will be making maximum profits by expanding output to the level where marginal revenue is equal to marginal cost.
If it goes beyond the point of equality of marginal revenue and marginal cost, it will be incurring losses on the extra units of output and therefore will be reducing its total profits.
Hence, if a company wants to maximize its profits the main condition is marginal revenue equals marginal cost (MR = MC).