Question

In order to maximize profit, a firm (in any market structure) should produce where

A. Price equals marginal cost

B. Marginal revenue equals marginal cost

C. Price equals average total cost.

D. Average total cost is minimized

Answer 1

ANSWER:

In any market structure to maximize profit a firm should produce where Marginal revenue equals marginal cost because the firm will continuously produce product until marginal profit is equal to zero and marginal profit equals the marginal revenue minus marginal cost. In a way when marginal revenue is greater than Marginal cost they tend to produce more and more and from this each added unit sold will add more to revenue than to cost but when marginal cost rise and at high level of production will exceed marginal revenue from this way the firm must have to reduce production back to the level where Marginal revenue and marginal cost are equal and then owner get profitability with this decision.