To maximize profits,a firm should continue to increase production of a good until:
A) total revenue equals total cost.
B) profits are zero.
C) marginal revenue equals marginal cost.
D) average cost equals average revenue.

Question

Quizplus · Accepted Answer

Marginal revenue (MR) represents the change in total revenue that results from an additional unit of output sold, while marginal cost (MC) represents the change in total cost that results from producing an additional unit of output. Therefore, as long as MR is greater than MC, producing an additional unit of output will increase profits. However, once MR equals MC, producing an additional unit will not increase profits, and so the firm should stop increasing production at that point. Therefore, the correct choice is C, where marginal revenue equals marginal cost.

To Maximize Profits,a Firm Should Continue to Increase Production of a Good