Question

Briefly explain using a graph whether given statement is true or false. ‘To maximise profit, a firm should produce the quantity where the difference between marginal revenue and marginal cost is the greatest. If a firm produces more than this quantity, then the profit made on each additional unit will be falling.’

Answer 1

The given statement is false and this is because of the fact that when a firm wants to maximize the profit, the output that should be produced is when the marginal revenue equals the marginal cost. because marginal cost is increasing curve and marginal revenue is decreasing curve initially the marginal profit is higher and positive and as you go on the quantity increase, the marginal profit keeps on decreasing but still remains positive so that profit overall increases and it will reach a maximum till both becomes equal and after that the profit decreases because marginal cost exceeds marginal revenue

Therefore 'False if the answer to this question

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