If a firm seeks to maximize total revenue, it should produce the ...

[kaid0807]

If a firm seeks to maximize total revenue, it should produce the quantity where:
 a. marginal revenue equals zero.
 b. elasticity of demand is less than one.
 c. elasticity of demand is greater than one.
  d. marginal revenue is maximized.

Question 2

Explain the reason behind the declining gap between average cost (AC) and average variable cost (AVC) curves at higher levels of output.

[KKcool]

Answer to Question 1

a

Answer to Question 2

The gap between the AC and the AVC is the average fixed cost of production, which is obtained by dividing the total fixed cost by the level of output. As output level rises, average fixed cost of production declines. Hence, the gap between the AC and the AVC also declines as output expands.