Why does the profit-maximizing level of production occur at the point where marginal revenue equals marginal cost?
What will be an ideal response?
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.
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Select the phrase that correctly completes the following statement. "An increase in input prices caused a decrease in the supply of baseballs. As a result ________."
A) the price of baseballs increased and the quantity demanded of baseballs decreased B) the equilibrium quantity of baseballs increased C) the price of baseballs increased. The higher price caused the supply of baseballs to increase D) the price of baseballs increased and the demand for baseballs decreased
If information in the market for used motorcycles is symmetric and both buyers and sellers are equally ignorant, then
A) the market is efficient. B) both good and bad motorcycles will sell for the same price. C) if only good motorcycles are sold, the price would be higher. D) All of the above.