Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Marginal revenue equals marginal cost
B
Marginal revenue is less than marginal cost
C
Marginal revenue exceeds total revenue
D
Marginal revenue is constant regardless of output level
Understanding the Answer
Let's break down why this is correct
Answer
Marginal revenue is the extra money a firm makes from selling one more unit of a product. Profit maximization happens when a firm chooses the level of output where its marginal revenue equals its marginal cost, which is the cost of producing one more unit. This is important because if marginal revenue is greater than marginal cost, the firm can increase its profit by producing more. Conversely, if marginal revenue is less than marginal cost, the firm should produce less to avoid losing money. For example, if a toy company finds that selling one more toy brings in $10, but it costs $8 to make it, the company is maximizing profit by continuing to produce that toy.
Detailed Explanation
A firm maximizes profit when it produces until its marginal revenue equals its marginal cost. Other options are incorrect because This option suggests that the money earned from selling one more unit is less than the cost to make it; This option implies that the money earned from selling one more unit is greater than the total money made.
Key Concepts
marginal revenue
Topic
Profit Maximization for Firms
Difficulty
easy level question
Cognitive Level
understand
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