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Production and cost — Economics STD 12 Humanities & Commerce — Question

Rajasthan BoardEnglish MediumSTD 12 Humanities & CommerceEconomicsProduction and cost2 Marks
Question
What happens if the firm increases its output even when MR = MC?
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Answer

In a situation when MR = MC and MC is rising thereafter, hence any increase in output would mean MC > MR. This is because MR is assumed to be constant (as under perfect competition). It would be a situation when the difference between TR (EMR) and TVC (EMC) tends to reduce or that the firm's gross profit starts reducing. But if MR = MC and MC is falling then this signifies increased profits for the firm. So, by increasing its output, a firm may be able to super normal profits.

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