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Question
Microeconomics
Posted 2 months ago

Which of the following best describes a firm's profit maximization rule?
Choose 1 answer:
(A) produce the quantity where marginal revenue exceeds marginal cost by the greatest amount.
(B) produce the quantity where marginal cost equals marginal revenue
(c) produce the quantity where price is equal to the average total cost
(D) produce the quantity where price exceeds average variable cost by the greatest amount.
(E) Produce the quantity where average variable cost equals average total cost
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Answer from Sia
Posted 2 months ago
Solution
a
Marginal Revenue and Marginal Cost: The firm's profit maximization rule is to produce the quantity where marginal cost (MC) equals marginal revenue (MR). This is because at this point, the firm cannot increase profit by producing more or less
b
Profit Maximization Condition: Mathematically, the profit maximization condition is given by MR=MCMR = MC. If MR>MCMR > MC, the firm can increase profit by producing more. If MR<MCMR < MC, the firm can increase profit by producing less
Answer
(B) produce the quantity where marginal cost equals marginal revenue
Key Concept
Profit Maximization Rule
Explanation
A firm maximizes its profit by producing the quantity where marginal revenue equals marginal cost. This ensures that the firm is not missing out on potential profits by producing too little or incurring losses by producing too much.

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