Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Marginal costs should equal total revenue to maximize profit.
B
Marginal costs should be less than total revenue to maximize profit.
C
Marginal costs have no impact on total revenue.
D
Marginal costs should be greater than total revenue to maximize profit.
Understanding the Answer
Let's break down why this is correct
Answer
When a business wants to make the most profit, it needs to think about how much it costs to produce one more item, which is called marginal cost. This cost should be compared to the revenue gained from selling that extra item, known as total revenue. The goal is to keep producing more items until the cost of making one more item is equal to the money earned from selling it. For example, if it costs $5 to make one more toy, and the toy sells for $10, the company should produce that toy because it makes a profit of $5. However, if the cost rises to $12, the company would stop making more toys since it would lose money.
Detailed Explanation
To make the most profit, the cost of making one more item (marginal cost) should be less than what you earn from selling it (total revenue). Other options are incorrect because Some might think that if costs equal revenue, you break even; This idea suggests costs don't matter, but they do.
Key Concepts
profit maximization
production costs
Topic
Marginal Costs and Total Revenue
Difficulty
medium level question
Cognitive Level
understand
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