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Behavioural principles

  • A firm should not produce at all, if total revenue from its product does not equal or exceed its total variable cost.
  • If any unit of production adds more to revenue than to cost, it will increase profits. On the other hand, if it adds more to cost, it will decrease the profits. Profits will reach maximum at the point where additional revenue from a unit equals its additional cost. Thus, marginal cost curve should cut the marginal revenue curve from below.

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