00:01
So here, let's remember that when we talk about optimization, we're usually talking in economics about maximizing profits, which is revenues minus costs.
00:12
Now we're comparing marginal revenue greater than marginal cost, right? so if marginal revenue is greater than marginal cost, this implies that one more queue, one more unit produced and sold adds more to revenue.
00:31
Than to cost.
00:36
So for example, if the marginal revenue is five, revenue would be increasing by five, but if the marginal cost is three, cost would be increasing by three, which means that profit would be increasing by two.
00:49
That means that it should be produced, right? if marginal revenue is greater than marginal cost, each additional quantity is contributing positively to profit, and if you're trying to maximize your profit, you want to keep producing, right? so here the correct answer is a, right? increase output, right? this is true in both perfect and imperfect competition.
01:18
The key thing is here is that the market structure affects marginal revenue.
01:30
But once we know what marginal revenue is, this decision rule always holds, right? so the marginal revenue of the 10th unit might be different for a monopoly versus a perfectly competitive firm.
01:41
But once we know what the marginal revenue of that unit is, this rule always applies...