What happens when marginal revenue is less than marginal cost?
Answer:
The short answer is that suppliers lose their shirts until they stop producing.
As long as Marginal Revenue exceeds Marginal Cost, suppliers generate incremental profit the more units it produces. As long as you are covering your variable (or marginal) cost, you are better off producing more units, since you are generating additional cash off your existing capital base. Once you cease to cover your incremental (marginal) costs, every unit you produce costs you money. So you are better off ceasing production.
The above assumes you are not in the position to influence prices. If you are, the simple answer is that you raise prices until marginal revenue exceeds marginal costs. In perfect competition, suppliers cannot do this, since if they increase prices, other suppliers will step in to fill demand at the existing price.
Hope this helps. If you gave a little bit more background, it might allow answerers to respond more completely to your question.
Marginal profit is negative.
It means that the firm is not earning maximum economic profits (this is different than accounting profits). If the firm has pricing power, then the firm will adjust p/q such that the equalith holds. If the firm does not have pricing power, the frim has to decide to stay or exit the market depending on the relation between the market clearing price given Q and the LRAC, MC and FC.
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