Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
To minimize costs
B
To maximize total revenue
C
To maximize the difference between total revenue and total costs
D
To increase market share
Understanding the Answer
Let's break down why this is correct
Answer
The primary goal of a firm that focuses on profit maximization in a competitive market is to earn the highest possible profit by balancing its costs and revenues. To achieve this, the firm must decide how much of a product to produce and at what price to sell it, ensuring that the price exceeds the cost of production. For example, if a bakery produces cupcakes for $1 each and sells them for $2, it makes a profit of $1 for every cupcake sold. The bakery will continue to produce cupcakes as long as the price is higher than the cost, maximizing its profits. In a competitive market, firms also need to consider their competitors' prices and production levels to stay profitable.
Detailed Explanation
The main goal is to make as much profit as possible. Other options are incorrect because Some might think minimizing costs is the goal; Maximizing total revenue sounds good, but it doesn't consider costs.
Key Concepts
profit maximization
Topic
Optimization in Microeconomics
Difficulty
easy level question
Cognitive Level
understand
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