Author Question: Why does the profit-maximizing level of production occur at the point where marginal revenue equals ... (Read 51 times)

luminitza · **on:** Jun 29, 2018

Why does the profit-maximizing level of production occur at the point where marginal revenue equals marginal cost?

What will be an ideal response?

Question 2

Which of the following is NOT a government-run income maintenance program?

A) Social Security
B) unemployment compensation
C) temporary Assistance of Needy Households
D) life insurance

sarajane1989 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

If a firm produces at a level where marginal revenue is greater than marginal cost, more profit could be gained by increasing output. Why? Because the added revenue (the marginal revenue) from producing another unit exceeds the added cost (the marginal cost) of producing the unit. Therefore the firm should increase production until no more additional profit can be earned, which occurs where marginal revenue equals marginal cost.
Similarly, if a firm produces at a level where marginal cost exceeds marginal revenue, the firm's profit would rise by decreasing output. In this case, the saved costs (the marginal cost) exceed the lost revenue (the marginal revenue). Therefore the firm should decrease production until the point at which marginal cost equals marginal revenue.

Answer to Question 2

D