Quantity

Marginal Revenue

Marginal Cost

Marginal Profit

Total Profit

Q

MR

MC

MP

P

5

6

7

8

400

200

0

−200

400

850

1,500

2,400

0

−650

2,350

1,700

−1,500

200

−2,600

−2,400

TABLE 9.4 Marginal Revenue, Marginal Cost, Marginal and Total Profit

Table 9.4 repeats the marginal cost and marginal revenue data from Table 9.3, and adds two more columns:

Marginal profit is the profitability of each additional unit sold. We define it as marginal revenue minus marginal

cost. Finally, total profit is the sum of marginal profits. As long as marginal profit is positive, producing more

output will increase total profits. When marginal profit turns negative, producing more output will decrease total

profits. Total profit is maximized where marginal revenue equals marginal cost. In this example, maximum profit

occurs at 5 units of output.

A perfectly competitive firm will also find its profit-maximizing level of output where MR = MC. The key difference
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