Why does the profit-maximizing level of production occur at the point where marginal revenue equals marginal cost?
What will be an ideal response?
If a firm produces at a level where marginal revenue is greater than marginal cost, more profit could be gained by increasing output. Why? Because the added revenue (the marginal revenue) from producing another unit exceeds the added cost (the marginal cost) of producing the unit. Therefore the firm should increase production until no more additional profit can be earned, which occurs where marginal revenue equals marginal cost.
Similarly, if a firm produces at a level where marginal cost exceeds marginal revenue, the firm's profit would rise by decreasing output. In this case, the saved costs (the marginal cost) exceed the lost revenue (the marginal revenue). Therefore the firm should decrease production until the point at which marginal cost equals marginal revenue.
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A perfectly elastic supply curve
a. has no relevance, since real-world supply curves are never perfectly elastic b. is a horizontal straight line c. is a vertical straight line d. is an upward-sloping straight line e. is not a straight line
During the 2007-2009 financial crisis, the Federal Reserve took some unusual steps in its conduct of monetary policy. Which of the following was not one of them? a. It invested in AIG
b. It invested more than $1 trillion in mortgage-backed securities. c. It worked with the U.S. Treasury and with other regulators to stabilize banks and thaw frozen credit lines. d. It worked with the U.S. Treasury and other regulators to help conduct a stress test of the 19 largest banks. e. It bailed out General Motors.
Because of the high fertility rates in the poorest countries, children under 15 years old make up nearly half the population there
Indicate whether the statement is true or false
Gaining control of a corporation through stock purchase or exchange is known as
a. a merger b. an acquisition c. a partnership d. a cooperation e. a joint venture