At the profit-maximizing level of output,
A)marginal revenue equals average total cost.
B)marginal revenue equals average variable cost.
C)marginal revenue equals marginal cost.
D)average revenue equals average total cost.

Question

Quizplus · Accepted Answer

At the profit-maximizing level of output, the firm produces where marginal revenue (MR) equals marginal cost (MC) because at this point, the additional revenue from producing one more unit is equal to the additional cost of producing one more unit. This ensures that the firm is not leaving any potential profits on the table. Marginal revenue does not equal average total cost (ATC) because ATC includes fixed costs, which are not relevant to the decision of how much to produce in the short run. Marginal revenue also does not equal average variable cost (AVC) because AVC only includes variable costs, not fixed costs. Average revenue (AR) does not come into play when determining the profit-maximizing output level because it simply reflects the price at which each unit is sold and does not take into account the costs of production.

At the Profit-Maximizing Level of Output