http://ask.metafilter.com/tags/profitmaximization Questions tagged with 'profitmaximization' at Ask MetaFilter. Wed, 21 Mar 2007 09:07:30 -0800 Wed, 21 Mar 2007 09:07:30 -0800 en-us http://blogs.law.harvard.edu/tech/rss 60 http://ask.metafilter.com/59120/MRMC%2DWhy EconomicsFilter: why does profit maximize when marginal revenue = marginal cost? To get this out of the way: no, this is not for any sort of assignment, research paper, etc. <br> <br> As a student of economics, I've always been told that in perfect competition, MR=MC. But one thing I've been struggling with lately is - why?<br> <br> I understand why MC &gt; MR would be bad, since it would cost more to produce an additional unit than that same unit would generate in revenue. But what I don't understand why MR &gt; MC would continue until MR = MC. Wouldn't one want its marginal revenue to be greater than its marginal costs? I mean, if profit is maximized when there is the greatest difference between total revenue and total cost, why is the same not the case here? Let's say if MC = $10 and MR = $20, why wouldn't a producer just call it a day and be happy with a $10 marginal profit (please correct me if this example is flawed).<br> <br> I've looked at some textbooks for their explanation but it really didn't answer my question. Furthermore, I haven't had too much luck online, and Wikipedia's or Wikibooks' explanation isn't too satisfactory either. Perhaps the Hive Mind has a good explanation... tag:ask.metafilter.com,2007:site.59120 Wed, 21 Mar 2007 09:07:30 -0800 economics marginalcost marginalrevenue profit profitmaximization champthom