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Sagot :
When the value of the final unit of production (marginal revenue) equals the cost of generating the final unit of production, a producer optimizes profit (marginal cost).
The highest profit is at the output where MC and MR are equal.
As long as the revenue from producing an additional unit of output (MR) exceeds the cost of producing that additional unit of output, the company will increase its profit by using more variable input to produce more output (MC).
It is evident that increasing input will eventually cause production to decline and costs to rise according to the law of (the reality of) declining marginal productivity. The cost of creating an extra unit of output reduces profit when the level of production reaches a point where the revenue from the additional unit of output (MR) exceeds the cost of producing the additional unit of output (MC). As a result, the company won't make that unit.
The level of production at which the cost of generating an extra unit of output (MC) equals the revenue that would be generated from that additional unit of output is the level of output where profit is maximized (MR).
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