To maximize profit, the firm should set output at the level where:
A) the average cost per unit is minimized.
B) average revenue just equals average cost.
C) marginal cost equals zero.
D) marginal revenue is equal to marginal cost.
E) marginal revenue equals zero.

Question

Quizplus · Accepted Answer

To maximize profit, the firm should produce the output where marginal revenue is equal to marginal cost. This is because at this point, the firm is earning the highest amount of profit per unit. If the firm were to produce more than this point, the marginal cost would be higher than the marginal revenue, reducing the total profit. If the firm were to produce less than this point, the marginal revenue would be higher than the marginal cost, indicating the firm could earn higher profits by producing more.

To Maximize Profit, the Firm Should Set Output at the Level