Explain why a firm maximizes its profits by producing the level of output at which marginal revenue equals marginal costs
What will be an ideal response?
Profit is equal to the difference between total revenue and total cost. Marginal revenue is the addition to total revenue when an additional unit of output is produced and sold. Marginal cost is the addition to total cost when an additional unit of output is produced. So long as MR > MC, more is added to total revenue than is added to total cost. As such, the difference between total revenue and total cost, i.e., profit, increases. When MR < MC, more is added to total cost than is added to total revenue. In this case, the difference between total revenue and total cost, i.e., profit, decreases.
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In a closed economy, public saving is equal to which of the following? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers)
A) T - G - TR B) Y - C - T + TR C) Y - G - T D) Y - C - T
The purchase by the Canadian government of a fighter jet produced in the United States is included in U.S
A) consumption spending. B) investment spending. C) government purchases. D) net exports.
If John's marginal utility derived from the consumption of another candy bar is 1 and the price of the candy bar is $1.50, then
a. this is the last candy bar John will purchase since the marginal utility is less than the price. b. the opportunity cost of the candy bar is less than $1.50. c. if John purchases and consumes the candy bar his total satisfaction will go down because the marginal utility is less than the price. d. there is not enough information to determine if John will or will not purchase the candy bar.
Other things the same, if the price level rises, then domestic interest rates
a. rise, so domestic residents will want to hold more foreign bonds. b. rise, so domestic residents will want to hold fewer foreign bonds. c. fall, so domestic residents will want to hold more foreign bonds. d. fall, so domestic residents will want to hold fewer foreign bonds.