Asked by Kathryn Murphy on May 12, 2024
Verified
If current output is less than the profit-maximizing output, which must be true?
A) Total revenue is less than total cost.
B) Average revenue is less than average cost.
C) Average revenue is greater than average cost.
D) Marginal revenue is less than marginal cost.
E) Marginal revenue is greater than marginal cost.
Profit-Maximizing Output
The level of production at which a firm achieves the highest possible profit.
Marginal Revenue
The additional income generated from selling one more unit of a product or service.
Total Revenue
The total amount of money received by a firm from selling a certain quantity of goods or services, calculated as the price per unit times the number of units sold.
- Familiarize with the techniques companies utilize for optimizing profit-making decisions.
Verified Answer
SS
Sharon ShresthaMay 13, 2024
Final Answer :
E
Explanation :
If current output is less than the profit-maximizing output, it means that producing and selling one more unit of the product will increase total profit, which occurs when marginal revenue (the revenue from selling one more unit) is greater than marginal cost (the cost of producing one more unit). This is because, at the profit-maximizing level of output, marginal revenue equals marginal cost.
Learning Objectives
- Familiarize with the techniques companies utilize for optimizing profit-making decisions.