A firm will maximize profit by producing that level of output at which
A)the additional revenue from the last unit sold is equal to the additional cost of the last unit by the largest amount.
B)the average or unit cost of production is minimized.
C)the fixed costs of production are minimized.
D)total revenue equals total cost.
E)all of the above

Question

Quizplus · Accepted Answer

Maximizing profit involves comparing the marginal revenue (additional revenue earned from selling one more unit) with the marginal cost (additional cost incurred from producing and selling one more unit). The firm should continue producing until the marginal revenue equals the marginal cost by the largest amount. This is because producing more than this level would result in decreasing profit, and producing less than this level would also result in decreasing profit due to missed opportunities to sell more units at a higher price. Therefore, choice A is the best option. The other choices are not entirely accurate or complete in their descriptions of profit maximization.

A Firm Will Maximize Profit by Producing That Level of Output