00:01
So here we're talking about a perfectly competitive firm, and we're asking if the firm sets quantity sets that marginal revenue is less than marginal cost.
00:11
So obviously we should think about what these things are.
00:14
This is the revenue from increasing quantity by one, and this is the cost by increasing by, let's just say, q plus one as well, right? so marginal revenue is what the firm is bringing in when it expands output, and marginal cost is what it costs.
00:35
So here you've got cost.
00:39
The change in cost is greater than the change in revenue.
00:46
And if you remember that profit is equal to revenue minus cost, this means that if q goes up, cost is going to go up by a lot.
00:59
Revenue will only go up by a little, and that means that profit has got to fall.
01:04
If this firm is producing where the costs are greater than the marginal revenues, it means that it's losing money on these units...