A firm maximizes profit by operating at the level of output where:
A) average revenue equals average cost.
B) average revenue equals average variable cost.
C) total costs are minimized.
D) marginal revenue equals marginal cost.
E) marginal revenue exceeds marginal cost by the greatest amount.

Question

Quizplus · Accepted Answer

Maximizing profit requires producing where marginal revenue equals marginal cost. This is because if marginal revenue is greater than marginal cost, producing more will increase profit, and if marginal cost is greater than marginal revenue, producing less will increase profit. Only producing where marginal revenue equals marginal cost ensures that the firm is at the point of maximum profit.

A Firm Maximizes Profit by Operating at the Level of Output