E.3.6

 = Demonstrate how firms with market power can determine price and output through marginal analysis. =

//**Focus Question: How do businesses use marginal analysis?**//
Click [|here] to learn what marginal analysis is.

Marginal Revenue (MR) equals the price of the good in competitive firms //Change in MR= Change in Total Revenue (TR)/ Change in Output (Q)//

A firm's Marginal Cost curve determines how much the firm is willing to supply at any price, it is the competitive firm's supply curve


 * If Marginal Revenue exceeds marginal cost, the firm should increase output to increase profit
 * If Marginal Cost exceeds marginal revenue, the firm should decrease output to increase profit
 * At the profit-maximizing level of output, Marginal Revenue and Marginal Cost are exactly equal

Source: Gregory Mankiw, //Principles of Microeconomics//, 4th edition