EGT1 Essay Example | Topics and Well Written Essays - 500 words

EGT1 - Essay Example From this discussion it is clear that the total profit increases when marginal profit is positive i.e. when marginal revenue is greater than marginal cost. Similarly, the total profit decreases when marginal profit is negative i.e. marginal revenue is less as compared to marginal cost. Maximum total profit is achieved when marginal profit becomes zero. At this point, marginal revenue is equal to marginal cost. A further increase in output leads to a negative marginal profit or a marginal loss i.e. the total profit starts decreasing. Thus, maximum profit is achieved at a point where marginal profit is equal to marginal revenue. Figure 1 shows the graphs for Total Revenue, Total Cost, Marginal Revenue, Marginal Cost and Total Profit. The profit is maximized at output = q*.This paper highlights that if marginal revenue of a firm exceeds the marginal cost, a firm is in a healthy position. Its marginal profit is positive. The firm would hence need to take steps to increase the level of ou tput with the current resources provided the demand for the same exists. Additional labour may be required increasing cost but additional capital expenditure is generally not made in the short run. The firm may also take actions to boost market demand. These may include marketing and promotional activities.  If the marginal revenue of a firm is less than marginal cost, the firm is operating at sub-optimal levels. The firm needs to analyze whether the output produced is actually required. If no, the output levels are decreased.