mean that total revenue would be lower for every quantity sold. What happens if the price drops low enough so

that the total revenue line is completely below the total cost curve; that is, at every level of output, total costs

are higher than total revenues? In this instance, the best the firm can do is to suffer losses. However, a profit-

maximizing firm will prefer the quantity of output where total revenues come closest to total costs and thus

where the losses are smallest.

(Later we will see that sometimes it will make sense for the firm to close, rather than stay in operation

producing output.)

Comparing Marginal Revenue and Marginal Costs

The approach that we described in the previous section, using total revenue and total cost, is not the only

approach to determining the profit maximizing level of output. In this section, we provide an alternative

approach which uses marginal revenue and marginal cost.
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