To maximize profits or minimize losses (if the firm produces), a firm must be sure it is producing at an output where:
A)total revenue is greater than average cost.
B)total revenue is equal to average cost.
C)marginal revenue is greater than marginal cost.
D)marginal revenue is equal to marginal cost.
E)none of the above is correct.

Question

Quizplus · Accepted Answer

A firm must be producing where marginal revenue is equal to marginal cost in order to maximize profits or minimize losses. This is because producing one more unit will increase revenue by the amount of marginal revenue, but also increase costs by the amount of marginal cost. Therefore, only producing up to the point where marginal revenue equals marginal cost will result in the greatest possible profit.

To Maximize Profits or Minimize Losses (If the Firm Produces)