The firm maximizes profits by ________.

Question

Quizplus · Accepted Answer

To maximize profits, a firm should produce where marginal revenue (MR) equals marginal cost (MC). Looking at the graph or table, we can see that at a quantity of 40 units, the MR intersects the MC. This means that the firm should produce 40 units to maximize profits. At any other quantity, the firm would either be producing too much, causing marginal costs to be higher than marginal revenue and decreasing profits, or producing too little, causing marginal revenue to be higher than marginal cost and also decreasing profits.

The Firm Maximizes Profits by ________