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Answer
A firm maximizes its profit when it carefully balances its revenue and costs. Marginal revenue is the extra money the firm earns from selling one more unit of a product, while marginal cost is the extra cost of producing that additional unit. When the marginal revenue is greater than the marginal cost, it means the firm is making more money from selling an extra unit than it is spending to produce it. For example, if a company sells one more toy for $10 but it costs them only $7 to make it, they gain $3 in profit from that sale. Therefore, as long as the firm can continue to produce and sell more units where marginal revenue exceeds marginal cost, it can keep increasing its profits.
Detailed Explanation
A firm maximizes profit when it produces until marginal revenue equals marginal cost. Other options are incorrect because Some might think that just having higher revenue means profit is maximized.
Key Concepts
Profit Maximization
Marginal Revenue and Marginal Cost
Market Efficiency
Topic
Profit Maximization for Firms
Difficulty
medium level question
Cognitive Level
understand
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