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Graphical Method of Solving Linear Programming Problems

Gross profits...

Question

Gross profits are maximised only when a firm's $M C$ curve cuts $M R$ curve from below. Explain diagrammatically.

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Solution

Gross profits are maximized only when a firm's MC curve cuts MR curve from below as because when MC curve lies below the MR curve, in that situation MC< MR, so firm will continue its production till MC=MR in order to maximize its profit. Gross profit is the difference between total revenue and total variable cost.

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Similar questions

Q. Which of the following statements are correct with regard to firm's equilibrium under perfect competition?
(i) MR = MC
(ii) MC curve cuts the MR curve from below
(iii) TR = TC
(iv) MR = AR

Q. For a firm under perfect competition, profits are not maximised even when

M R > M C

M R > M C

, it is always a better situation than if

M R = M C

for profits to be maximised.

Q. A competitive firms MC curve and AVC curve are given. Show which region of the curves show the firm's supply curve in the short run?

See the MC and MR curves for a firm given below and identify the profit-maximizing level of output.

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