To maximize profits, firms produce the level of output that:
A) equates total revenue and total cost.
B) equates marginal revenue with marginal cost.
C) minimizes costs.
D) maximizes revenues.

Question

Quizplus · Accepted Answer

Maximizing profits requires that a firm produces the level of output where the additional revenue from producing one more unit (marginal revenue) is equal to the additional cost of producing one more unit (marginal cost). Therefore, the correct choice is B, which equates marginal revenue with marginal cost. Choices A, C, and D do not necessarily result in profit maximization.

To Maximize Profits, Firms Produce the Level of Output That