MR = MC condition
Also called: MR = MC rule, Profit-maximisation condition · Topic: Theory of the Firm, Supply and Perfect Competition · NCERT: Class 12, Ch 4 "The Theory of the Firm under Perfect Competition"
Meaning
The MR = MC condition says a firm's profit is highest at the output where marginal revenue (extra revenue from one more unit) equals marginal cost (extra cost of one more unit). While MR > MC, each extra unit adds to profit, so output should rise. While MR < MC, each extra unit reduces profit, so output should fall. For a perfectly competitive firm MR = p, so the condition becomes p = MC. This condition alone is not enough: MC must also be rising at that point.
Example
In NCERT Exercise 21 (price ₹10), MC crosses ₹10 from below between 5 and 6 units, and profit peaks at 5 units (₹12). At 1 unit, p = MC = ₹10 too, but MC is falling there, so it is not the maximum.
Don't confuse with
- Break-even point: this is where price equals minimum average cost and the firm earns only normal profit. It is about AC, not MC.