Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Marginal revenue must equal marginal cost
B
Marginal revenue must be greater than marginal cost
C
Marginal revenue must be less than marginal cost
D
Marginal revenue is irrelevant to profit maximization
Understanding the Answer
Let's break down why this is correct
Answer
Marginal revenue is the extra money a company makes from selling one more unit of a product. When a business aims to maximize profit, it needs to look at both its costs and its revenues. Profit is maximized when the marginal revenue equals the marginal cost, meaning the additional money made from selling one more item is exactly equal to the cost of making that item. For example, if a company finds that selling one more toy brings in $10, but it costs $10 to produce, then they should stop producing more toys because they are not making any extra profit. Understanding this balance helps businesses make smart decisions about how much to produce to maximize their earnings.
Detailed Explanation
To maximize profit, a business needs to set its output where the extra money earned from selling one more unit (marginal revenue) equals the extra cost of making that unit (marginal cost). Other options are incorrect because Some might think that making more money from each sale is always better; It's a common mistake to think that lower revenue means better profits.
Key Concepts
Marginal Revenue
Topic
Profit Maximization Techniques
Difficulty
easy level question
Cognitive Level
understand
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