Net revenue= TR-TC
– In the short run, gross revenue must cover the variable cost. Maximum net revenue is obtained when MC=MR.
– If the gross revenue is less than the total cost but greater than variable cost, guiding principle should be keep on production as long as MR is greater than MC.
– In short run, MC=MR point may be at the level of input use that may involve loss instead of profit. Yet at this point, loss will be minimized.
– For taking production decision on such a situation, one should go on using the resources as long as the added returns remain greater than the added total costs.
– Here the objective is to maximize the profit instead of minimizing losses.
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