Profit of a firm is maximized when:
A)marginal revenue is maximum.
B)marginal revenue is greater than marginal cost.
C)marginal revenue is equal to marginal cost.
D)marginal cost is minimum.
E)marginal revenue is less than marginal cost.

Question

Quizplus · Accepted Answer

Profit is maximized when marginal revenue equals marginal cost, because at that point the firm is producing the optimal quantity of output where the additional revenue gained from producing one more unit is exactly equal to the additional cost incurred. If marginal revenue is greater than marginal cost, the firm could increase profits by producing more, and if marginal revenue is less than marginal cost, the firm could increase profits by producing less.

Profit of a Firm Is Maximized When