Why does Marginal revenue have to equal marginal cost to maximize profit?

Question

Hello

The title says it all I guess? In theoretical economics, marginal cost has to equal marginal revenue in order to maximize profit. But this intuitively doesnt make sense to me Because that would just mean you’d have a profit of 0.

Is this somehow only applicable for monopolies?

Could someone clarify this reasoning please?

In: 2

Answer 1

It’s marginal revenue and cost, meaning the revenue and cost of the next unit produced. Not to be confused with total revenue and total cost; if those were equal, then yes profit is zero.

If marginal revenue is greater than marginal cost, then it makes sense to produce that next unit for more profit. Once marginal revenue = marginal cost, then there is no more need to produce the next unit; you’re at the profit-maximizing quantity produced.