THE PROFIT MAXIMIZING OUTPUT

Marginal Cost :

MC is the additional cost of producing one more unit of output

Marginal Revenue :

MR is the additional revenue obtained from selling one more unit of output
If

MR > MC, the firm can increase its profits by producing more output
MR < MC, the firm can increase its profits by producing less

Price QD TR TC MR MC Profits
5 0 0 3 - - -3
4 1 4 3.50 4 0.50 0.50
3 2 6 5 2 1.50 1.00
2 3 6 7.50 0 2.50 -1.50
1 4 4 11 -2 3.50 -7.00
0 5 0 15.50 -1 4.50 -15.50

The firm will continue to expand output as long as marginal revenue is greater than marginal cost because doing so adds to the firm's profits. Once MR=MC, any further increase in output lowers the firm's profits.