Why should a firm not produce more than the rate of output at which marginal revenue equals marginal cost?
What will be an ideal response?
A firm maximizes its total profits when producing the rate of output at which marginal revenue equals marginal cost. If the firm produces more than this rate of production, then marginal cost will exceed marginal revenue, meaning that total profits decrease as a result of a higher production rate. Therefore, the profit-maximizing firm should not produce more than the rate of production at which marginal revenue equals marginal cost.
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The decrease in consumer surplus and producer surplus that results from an inefficient level of production is called the
A) external cost. B) external benefit. C) deadweight loss. D) big tradeoff.
Suppose the probability of an employee being caught shirking, q, is a function of the employer's monitoring, M, such that q = M/100
If workers must put up a $1,000 bond and the gain to each worker from shirking is $100, what is the employer's optimal level of monitoring that is just sufficient to discourage shirking?