In order to maximize profit,a firm that produces two goods that are related in consumption should chose the levels of output at which:
A)total marginal revenue equals total marginal cost
B)total marginal revenue equals the marginal cost of each good
C)the marginal revenue of each good equals total marginal cost
D)marginal revenue equals marginal cost for each good
E)none of the above

Question

Quizplus · Accepted Answer

In order to maximize profit, a firm should produce at the level of output where marginal revenue equals marginal cost for each good. This is because at this point, the firm is producing each good at the optimal level where the additional revenue gained from producing one more unit of the good is equal to the additional cost incurred in producing that unit, resulting in the maximum possible profit. Choosing any other level of output would result in lower profits.

In Order to Maximize Profit,a Firm That Produces Two Goods