ECONOMICS
SUPPLY
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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set production so that total revenue plus cost is greatest
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set production at the point where marginal revenue is smallest
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set production at the point where marginal revenue equals marginal cost
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set production so that marginal revenue and profit are the same
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Detailed explanation-1: -A company that is looking to maximize its profits will produce up to the point where marginal cost equals marginal revenue. When marginal revenue falls below marginal cost, firms typically do a cost-benefit analysis and halt production as it may cost more to sell a unit than what the company will receive as revenue.
Detailed explanation-2: -To maximize profits, the firm should set marginal revenue equal to marginal cost. Given the fact that this firm is operating in a competitive market, the market price it faces is equal to marginal revenue. Thus, the firm should set the market price equal to marginal cost to maximize its profits: 9 = 3 + 2q, or q = 3.
Detailed explanation-3: -Therefore, profit is maximized when marginal cost equals marginal revenue which is the same as saying when marginal profit equals zero.
Detailed explanation-4: -The firm should increase output as long as marginal revenue exceeds marginal cost, and reduce output if marginal revenue is less than marginal cost. Profits are maximized when marginal revenue equals marginal cost.
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.