ECONOMICS
PROFIT
|
Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
|
|
|
TR=TC
|
|
|
AR=AC
|
|
|
MR=MC
|
|
|
Zero Economic Profit
|
Detailed explanation-1: -Profit is at maximum when marginal revenue equals marginal cost. MR is the additional revenue obtained from selling one more unit. MC is the additional cost incurred from selling one more unit of output. If MR exceeds MC, expand production.
Detailed explanation-2: -Marginal cost is an important factor in economic theory because a company that is looking to maximize its profits will produce up to the point where marginal cost (MC) equals marginal revenue (MR). Beyond that point, the cost of producing an additional unit will exceed the revenue generated.
Detailed explanation-3: -If MR > MC, then the firm should continue to produce. If MR = MC, then the firm should stop producing the additional unit. As the additional unit’s MC would be higher according to law of diminishing returns, MR would be less than MC; that is, the firm would loss profit by producing additional units.
Detailed explanation-4: -A manager maximizes profit when the value of the last unit of product (marginal revenue) equals the cost of producing the last unit of production (marginal cost). Maximum profit is the level of output where MC equals MR.