Question

Profit is maximised at that level of output where three conditions hold, which are _________.

• A. marginal revenue is equal to the marginal cost
• B. marginal cost is non-decreasing
• C. in the short run, the market price must be greater than or equal to the average variable cost
• D. all of these

Answer 1

Answer: (D)

all of these

Profit maximization is achieved when, the marginal revenue is equal to marginal cost and if MC and MR are not equal then the firm will benefit by increasing or decreasing output. It is also essential that the MC curve cut the MR curve from below to ensure an optimum quantity is produced. Lastly the price must exceed or be equal to the average variable cost (thus partly contributing to the fixed costs), in order for the firm to continue producing in the short run.