Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A firm maximizes profit by producing where marginal cost equals marginal revenue.
B
A firm maximizes profit by producing where marginal cost is greater than average total cost.
C
A firm maximizes profit by producing at any quantity without considering costs.
D
A firm maximizes profit by producing less than the quantity where marginal cost equals marginal revenue.
Understanding the Answer
Let's break down why this is correct
Answer
In a competitive market, businesses aim to maximize their profits by carefully managing their costs and revenues. Marginal cost is the additional cost of producing one more unit of a product. To maximize profit, a company should increase production as long as the revenue from selling an additional unit is greater than the marginal cost of making that unit. For example, if a bakery finds that making one more loaf of bread costs $2, but it can sell it for $3, then producing that loaf increases profit. Therefore, when marginal cost equals marginal revenue, the business has found its optimal level of production for maximum profit.
Detailed Explanation
A firm maximizes profit when it produces the amount where marginal cost equals marginal revenue. Other options are incorrect because This option suggests that profit is maximized when costs are high; This choice implies that a firm can ignore costs and still make a profit.
Key Concepts
Marginal Cost
Topic
Profit Maximization Techniques
Difficulty
easy level question
Cognitive Level
understand
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