Under the total revenue and total cost approach to profit maximization,
A)firms equate total variable cost to total revenue in order to maximize profit
B)profit is maximized when fixed cost falls to zero
C)firms choose the level of output at which total revenue is the greatest distance above total cost when the firm earns an economic profit
D)firms choose the level of output at which the changes in revenue and cost both equal zero
E)total revenue is maximized when profit is zero

Question

Quizplus · Accepted Answer

Under the total revenue and total cost approach, profit is maximized when the difference between total revenue and total cost is the greatest. This occurs at the output level where total revenue is the greatest distance above total cost and the firm earns an economic profit. Therefore, choice C is the correct answer. Choices A, B, D, and E are all incorrect.

Under the Total Revenue and Total Cost Approach to Profit