Firms maximize profit when
A) the additional benefit from producing a good equals the additional cost of producing that good.
B) MR = MC.
C) the derivative of the profit function with respect to output is zero.
D) All of the above.

Question

Quizplus · Accepted Answer

All of the statements are true and are different ways of expressing the same concept of profit maximization. When the additional benefit from producing a good, also known as marginal revenue (MR), equals the additional cost of producing that good, also known as marginal cost (MC), the firm is at its equilibrium point where it maximizes profit. This can also be shown graphically by finding the point where the MR and MC curves intersect. Additionally, the derivative of the profit function with respect to output is zero at the point of maximum profit. Therefore, all three statements lead to the same conclusion that firms maximize profit when MR = MC.

Firms Maximize Profit When