Chapter 10R, Problem 6MCQ

To determine

The result of a firm producing at the level where marginal costs are equal to marginal revenue.

Answer to Problem 6MCQ

(b) Will definitely be maximizing the profit.

Explanation of Solution

The firm is producing at the level where the marginal revenue is equal to the marginal cost. It means the firm cannot earn more additional revenue than the increment in the costs. Beyond this level, the marginal costs will be higher than the marginal revenue and the firm’s profit will start to decline. Hence, option (b) is correct.

Option (a), (c), (d), and (e) are incorrect because it is the profit maximization condition if the firm continues to produce at that level, then the profit will be maximum. If the firms increase or decrease their production, the profits will be less than the current profit maximizing level at MR=MC which violates the profit maximization condition.

Economics Concept Introduction

Introduction:

The profit of a firm is maximized where the cost of producing an additional unit is equal to the additional revenue earned by the sale of the product. When this equality of marginal cost and revenue is observed, the firm is always maximizing its profit.