A profit-maximizing producer wants to produce where:

Question

Quizplus · Accepted Answer

A profit-maximizing producer wants to produce where price equals marginal cost. At this point, the producer is maximizing the profit per unit sold, since the revenue earned from selling the unit is equal to the cost incurred to produce that unit. This concept is known as the profit maximization rule, where firms will continue producing until marginal revenue equals marginal cost. If the producer were to produce where price is greater than marginal cost, they would produce beyond the point where their profit is maximized, and if they were to produce where the average total cost is minimized, they may not be producing at the point where they can maximize profit.

A Profit-Maximizing Producer Wants to Produce Where