Explain why a firm maximizes its profits by producing the level of output at which marginal revenue equals marginal costs
What will be an ideal response?
Profit is equal to the difference between total revenue and total cost. Marginal revenue is the addition to total revenue when an additional unit of output is produced and sold. Marginal cost is the addition to total cost when an additional unit of output is produced. So long as MR > MC, more is added to total revenue than is added to total cost. As such, the difference between total revenue and total cost, i.e., profit, increases. When MR < MC, more is added to total cost than is added to total revenue. In this case, the difference between total revenue and total cost, i.e., profit, decreases.
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Consider the following statement: "Real GDP and potential GDP are always equal." Is this statement true or false? Explain your answer
What will be an ideal response?
If a firm launches a successful advertising campaign, then its
a. ATC curve shifts upward with a smaller rise at larger output levels b. ATC curve shifts upward with a smaller rise at smaller output levels c. demand curve shifts to the left and becomes flatter d. demand curve shifts to the right and becomes flatter e. demand curve shifts to the left and becomes steeper