ECONOMICS
PROFIT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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marginal revenue exceeds marginal cost by the highest amount
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marginal revenue equals marginal cost
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price exceeds average cost by the highest amount
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price equals marginal cost
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Detailed explanation-1: -A firm maximizes its profits by choosing to supply the level of output where its marginal revenue equals its marginal cost. When marginal revenue exceeds marginal cost, the firm can earn greater profits by increasing its output.
Detailed explanation-2: -Maximum profit is the level of output where MC equals MR. As long as the revenue of producing another unit of output (MR) is greater than the cost of producing that unit of output (MC), the firm will increase its profit by using more variable input to produce more output.
Detailed explanation-3: -Economic Profit in the Short Run. A firm’s economic profit is the difference between total revenue and total cost. Recall that total cost is the opportunity cost of producing a certain good or service.
Detailed explanation-4: -According to economic theory, a firm should expand production until the point where marginal cost is equal to marginal revenue.
Detailed explanation-5: -A firm’s total profit is maximized by producing the level of output at which marginal revenue for the last unit produced equals its marginal cost, or MR = MC. In a perfectly competitive market, MR is equal to the market price P for all levels of output.