Under the total revenue and total cost approach to profit maximization,
A)firms equate total cost and total revenue in order to maximize profit
B)the profit-maximizing output level is equivalent to the total revenue-maximizing output level
C)when total costs are minimized,profits are maximized
D)firms choose the output level where TR - TC is greatest
E)total cost must always exceed total revenue in the long run

Question

Quizplus · Accepted Answer

The total revenue and total cost approach to profit maximization suggests that firms should choose the output level where the difference between total revenue (TR) and total cost (TC) is greatest. This difference, known as profit, is maximized at the output level where the marginal revenue (MR) equals the marginal cost (MC), or where the slope of the TR curve intersects with the slope of the TC curve. Therefore, option D is the best choice. Option A is incorrect because equating total cost and total revenue may not always lead to profit maximization. Option B is false because the profit-maximizing output level may not necessarily be equal to the total revenue-maximizing output level. Option C is incorrect because minimizing total cost is not a surefire way to maximize profits. Finally, option E is false because total revenue can sometimes exceed total cost in the long run.

Under the Total Revenue and Total Cost Approach to Profit