Question

why is MR>MC not ideal when it comes to production?? why does MR have to equal MC??

Answer 1

ANSWER

mRlme of- - - To Et to MR sur. Quantity Bucube

For a producer to be at equilibrium, there should be two conditions satisfied.

(1) MC curve should be rising

(2) MC=MR

The above diagram which draws MC and MR curves on the same plane shows different points.

Point B can not be at equilibrium because the MC curve is decreasing so it violates our first condition.

Point E is the equilibrium point where MR=MC and MC curve is increasing. So it satisfies both the conditions. This is the point where the producer maximizes his profits.

If MR>MC

If MR exceeds the MC then this shows that there is scope for the producer to produce more units. He can still keep on producing until the point where MR=MC.

At Point F, the profit for the producer is also not maximized so he can still produce more to maximize his profits.

MR should be equal to MC because if the producer produces more than Point E then the profit he maximized gets declining. So if he produces one more unit from here on, the MC>MR which means Marginal Profit does not equal to 0. Due to MC>MR will lead to eroding of profit.