ECONOMICS
TECHNOLOGY
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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 costs is greatest
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set production at the point where marginal revenue is smallest
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determine the largest gap between total revenue and total cost
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determine where marginal revenue and profit are the same
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Detailed explanation-1: -In economics, profit maximization occurs when there is a maximum gap between total revenue (TR) and the total cost (TC). In other words, it happens when the marginal revenue of production is equal to or more than its marginal cost. (MR = MC).
Detailed explanation-2: -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.
Detailed explanation-3: -To maximize profit, a firm chooses a quantity of output such that marginal revenue equals marginal cost. Because marginal revenue for a competitive firm equals the market price, the firm chooses quantity so that price equals marginal cost. Thus, the firm’s marginal cost curve is its supply curve.
Detailed explanation-4: -In a perfectly competitive market, MR is equal to the market price P for all levels of output. These points imply that a perfectly competitive firm will maximize profit by producing output where P = MC.
Detailed explanation-5: -In the model of perfect competition, we assume that a firm determines its output by finding the point where the marginal revenue and marginal cost curves intersect. Provided that price exceeds average variable cost, the firm produces the quantity determined by the intersection of the two curves.