A firm maximizes its profits when:
A)the marginal revenue curve runs much below the marginal cost curve.
B)marginal costs are more than marginal revenues.
C)the marginal revenue curve runs parallel to the marginal cost curve.
D)marginal costs equal marginal revenues.

Question

Quizplus · Accepted Answer

Maximizing profits occurs when a firm produces at the level where marginal costs equal marginal revenues (MC=MR). At this point, the additional revenue generated from selling one more unit is just enough to cover the additional costs associated with producing that unit. If the firm produces beyond this point, where marginal costs exceed marginal revenues, then they will be losing money on each additional unit produced. Conversely, if the firm produces less than this point, where marginal revenues exceed marginal costs, then they are missing out on potential profits that could be generated by producing and selling more units. Therefore, D is the best choice.

A Firm Maximizes Its Profits When