Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
A firm hires more workers until the cost of labor exceeds the additional output produced.
B
A firm continues to invest in capital until the marginal product of capital equals its cost.
C
A firm reduces production to save costs, even if it leads to lower total revenue.
D
A firm maintains its current labor force despite decreasing demand for its product.
Understanding the Answer
Let's break down why this is correct
Answer
Profit maximization means a firm chooses the level of output where the extra money earned from selling one more unit equals the extra cost of producing that unit, called marginal revenue equals marginal cost. If a company keeps producing until the revenue from the next unit is no longer higher than its cost, it is maximizing profit. For example, a bakery that sells cupcakes will stop adding cupcakes once the price they can charge for the next cupcake equals the cost of baking it. By stopping at that point, the bakery ensures it earns the most money possible from its resources. This is the classic way a firm looks to maximize profit.
Detailed Explanation
The firm stops buying more capital when the extra output from one more unit equals its price. Other options are incorrect because Hiring workers beyond the point where each worker adds less output increases wage costs that are not covered by new sales; Reducing production cuts costs but also cuts revenue.
Key Concepts
Profit Maximization
Resource Allocation
Marginal Analysis
Topic
Profit Maximization
Difficulty
easy level question
Cognitive Level
understand
Practice Similar Questions
Test your understanding with related questions
1
Question 1Which scenario illustrates the principle of Comparative Advantage between two countries?
easyEconomics
Practice
2
Question 2Which of the following scenarios best illustrates the concept of specialization and trade?
easyEconomics
Practice
3
Question 3Which of the following examples best illustrates the principle of learning-by-doing in entrepreneurship?
mediumEconomics
Practice
4
Question 4Which of the following examples best illustrates the principle of learning-by-doing in entrepreneurship?
mediumEconomics
Practice
5
Question 5Which of the following scenarios best exemplifies the application of Empirical Risk Minimization in model training?
mediumEconomics
Practice
6
Question 6Which of the following scenarios best illustrates the law of demand?
easyEconomics
Practice
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.