At the optimal level of production of decanters, an extra decanter can be sold for $70, thereby increasing the total revenue by

Question

Marina86 [1]

4 years ago

12

At the optimal level of production of decanters, an extra decanter can be sold for $70, thereby increasing the total revenue by

$70. Why does the manager of this firm not produce and sell one more unit

Business

1 answer:

Pani-rosa [81] · Answer 1 · 2021-12-16T22:23:36+03:00

Answer:

The marginal cost (Cost of producing one extra unit), labelled as MC, must be lower than the marginal revenue (revenue earned from producing one extra unit). Marginal revenue (MR) is constant no matter how many quantities of units the seller sells/produces (As seen on attached graph) .

Once the marginal cost, exceeds the marginal revenue, the seller no longer has the appetite to produce more because he/she will then be running at a loss. Any point below the MR line on the graph is seen as profitable and the break-even point is where the MR cure touches the MC curve (MR = MC).