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Mini lessons / Microeconomics / 3.5

3.5 Profit maximization: MR = MC

One rule tells every firm, in every market, how much to make.

Step 1 of 4

Think at the margin

Marginal revenue (MR) is the extra revenue from selling one more unit. Marginal cost (MC) is the extra cost of making it.

  • If MR > MC, making one more unit adds to profit, so make it.
  • If MR < MC, that unit loses money, so don't.
  • Keep going until MR = MC. That output maximizes profit (or minimizes a loss).