Asked by Susana Guerrero on Apr 24, 2024
Verified
To maximize profits,a firm should produce output up to the point where
A) marginal revenue equals marginal cost.
B) price equals marginal revenue.
C) the gap between the demand curve and the ATC is the greatest.
D) None of the choices are correct.
Marginal Revenue
The extra revenue generated through the sale of an additional unit of a product or service.
Marginal Cost
The additional total cost incurred from manufacturing an additional unit of a product or service.
ATC
Average Total Cost, which is the total cost of production divided by the quantity of output produced, including both fixed and variable costs.
- Clarify the connection among price, marginal cost, marginal revenue, and average total cost, and its significance for decision-making in firms operating under perfect competition.
Verified Answer
PL
Pamela LewisMay 02, 2024
Final Answer :
A
Explanation :
Maximizing profits requires producing where marginal revenue (MR) is equal to marginal cost (MC). At this output level, the additional revenue from producing one more unit is equal to the additional cost of producing that unit, which means that profits cannot be increased further by producing more or less than this level.
Learning Objectives
- Clarify the connection among price, marginal cost, marginal revenue, and average total cost, and its significance for decision-making in firms operating under perfect competition.
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