To maximize profits, a firm should always produce the level of output where
A) marginal cost equals average total cost.
B) average total cost equals price.
C) marginal cost equals marginal revenue.
D) marginal revenue equals price.

Question

Quizplus · Accepted Answer

Maximizing profits requires producing where marginal revenue equals marginal cost. When producing at this level, the additional revenue from selling one more unit (marginal revenue) will be exactly equal to the additional cost of producing that unit (marginal cost), resulting in the greatest possible profit. Choosing A or B would result in producing at a higher level than the profit-maximizing level, while choosing D would result in producing at a lower level than the profit-maximizing level.

To Maximize Profits, a Firm Should Always Produce the Level