The general rule for profit maximization in a firm is to:
A) set average cost at its minimum.
B) reduce fixed costs by expanding output.
C) maximize sales revenue.
D) set marginal revenue to marginal cost.

Question

Quizplus · Accepted Answer

The best choice is to set marginal revenue to marginal cost for profit maximization. This is because when MR=MC, the firm is producing the output level where the last unit produced is adding exactly as much to total revenue as it is to total cost, resulting in the maximum profit. Choices A, B, and C are not necessarily the best ways to maximize profit as they do not take into account the revenue side of the profit equation.

The General Rule for Profit Maximization in a Firm Is