Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Marginal costs increase as production increases due to diminishing returns.
B
Total revenue is unaffected by changes in price when demand is perfectly elastic.
C
If marginal cost is less than marginal revenue, a firm should increase production to maximize profit.
D
Total revenue can decrease if a firm lowers its prices in a competitive market.
E
A firm should always produce at the level where total costs equal total revenue.
Understanding the Answer
Let's break down why this is correct
Answer
In a competitive market, marginal cost refers to the extra cost of producing one more unit of a good or service. Total revenue is the total amount of money a business earns from selling its goods or services. A key idea is that when a company wants to maximize its profit, it should produce up to the point where marginal cost equals marginal revenue, which is the additional income from selling one more unit. For example, if a bakery finds that producing one more cake costs $10 (marginal cost) and sells it for $15 (marginal revenue), it will increase its profit by making that cake. Therefore, understanding how marginal costs and total revenue interact helps businesses make smart production decisions in a competitive market.
Detailed Explanation
Other options are incorrect because Some think that costs always go up as you make more; People might believe that price changes don’t matter if demand is elastic.
Key Concepts
Marginal Costs
Total Revenue
Market Dynamics
Topic
Marginal Costs and Total Revenue
Difficulty
easy level question
Cognitive Level
understand
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