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

A P MC Protit B AJC ATC D AR MR - g* (Max profe's

It can be mentioned that the given statement is False​​ and this is because of the fact that a firm should produce the quantity at which the marginal revenue equals the marginal cost not when the difference between them is greatest and this is because initially the marginal revenue is decreasing and marginal cost is increasing with the difference would be maximum at 0 so that as you go on the marginal profit decreases but still it will be positive so that the total profit keeps on increasing until a level where both the equal and after that because marginal cost is more than marginal revenue the profit level decreases. this is why you have to understand that the maximum profit condition is when the marginal revenue equals marginal cost