Authors libby rittenberg 483

Applying the Marginal Decision Rule The slope of the total revenue curve is marginal revenue; the slope of the total cost curve is marginal cost Economic profit, the difference between total revenue and total cost, is maximized where marginal revenue equals marginal cost This is consistent with the marginal decision rule, which holds that a profit-maximizing firm should increase output until the marginal benefit of an additional unit equals the marginal cost The marginal benefit of selling an additional unit is measured as marginal revenue Finding the output at which marginal revenue equals marginal cost is thus an application of our marginal decision rule Figure 9.7 "Applying the Marginal Decision Rule" shows how a firm can use the marginal decision rule to determine its profit-maximizing output Panel (a) shows the market for radishes; the market demand curve (D), and supply curve (S) that we had in Figure 9.3 "The Market for Radishes"; the market price is $0.40 per pound In Panel (b), the MR curve is given by a horizontal line at the market price The firm’s marginal cost curve (MC) intersects the marginal revenue curve at the point where profit is maximized Mr Gortari maximizes profits by producing 6,700 pounds of radishes per month That is, of course, the result we obtained in Figure 9.6 "Total Revenue, Total Cost, and Economic Profit", where we saw that the firm’s total revenue and total cost curves differ by the greatest amount at the point at which the slopes of the curves, which equal marginal revenue and marginal cost, respectively, are equal Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 483