The profit-maximizing level of output occurs where:
A)marginal cost equals average cost.
B)marginal revenue equals zero.
C)total profit equals zero.
D)marginal cost equals marginal revenue.

Question

Quizplus · Accepted Answer

The profit-maximizing level of output occurs where marginal cost equals marginal revenue, as long as the marginal revenue is greater than or equal to the marginal cost. This is because at this level of output, the additional revenue earned from producing one more unit is exactly equal to the additional cost incurred in producing that one more unit. Any increase in output beyond this point would lead to a decrease in profit as the cost of producing additional units would exceed the revenue earned from selling those units. The profit-maximizing level of output occurs where marginal cost equals marginal revenue, as this is where the additional cost of producing one more unit is just equal to the additional revenue earned from selling that unit. At this point, the firm is maximizing its profits because any further increase in output would increase costs more than it would increase revenue, and any decrease in output would decrease revenue more than it would decrease costs.

The Profit-Maximizing Level of Output Occurs Where