What rule(s) should a firm follow in deciding optimum output for profit maximization?
What will be an ideal response?
The firm should expand its output as long as the added output contributes more to total revenue than it does to total cost, which means the spread between total revenue and total cost (that difference is profit) is increasing. The additions to TR and TC per unit of output are MR and MC, respectively. Output should optimally be set where MR and MC are equal; this occurs where TR ? TC = PROFIT is at a maximum.
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Which of the following statements regarding the creation of brand loyalty to create and maintain market power is false?
A) Brand loyalty efforts often focus on creating perceived, as opposed to real, differences among products. B) Brand loyalty can be enhanced by improving the level of service associated with a particular product. C) One study showed that, in the case of competing beers, brand loyalty has relatively little to do with price. D) Brand loyalty is determined primarily by real differences in competing products.
Assume the economy is initially in equilibrium with real GDP equal to potential GDP. Other things equal, if the economy enters a recession, automatic stabilizers
A) reduce the magnitude of the multiplier and reduce the size of the decline in real GDP. B) reduce the decline in investment expenditures and therefore increase the real short-term interest rate. C) cause any decrease in real GDP to be offset by an equal decrease in the inflation rate. D) raise the interest rate to prevent the output gap from falling below equilibrium.
Because the short-run average total cost curve slopes downward for an information product, the firm experiences
A) a downward sloping marginal cost curve. B) a downward sloping average variable cost curve. C) short-run economies of operation. D) long-run diseconomies of scale.
In a monopolistic competitive industry, how does a small appliance firm differentiate its products by emphasizing intangible aspects?
a. By offering a money-back guarantee b. By selling products through major retailers c. By offering products in multiple colors d. By offering discounts on new models