A Firm Maximizes Profit by Operating at the Level of Output

question 78

Multiple Choice

A firm maximizes profit by operating at the level of output where:

• A) average revenue equals average cost.
• B) average revenue equals average variable cost.
• C) total costs are minimized.
• D) marginal revenue equals marginal cost.
• E) marginal revenue exceeds marginal cost by the greatest amount.

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Definitions:

Total Revenue

The total amount of money a company receives from its business activities, such as sales of goods and services, before any expenses are subtracted.

Inelastic Demand

Refers to a situation where the quantity demanded of a good or service changes minimally in response to price changes.

Total Revenue

The total income received by a firm from selling its goods or services, calculated as the unit price multiplied by the quantity sold.

Law of Demand

A principle that states there is an inverse relationship between the price of a good and the quantity of it buyers are willing to purchase. As the price of a good increases, consumers will wish to purchase less of it. As the price decreases, consumers will wish to purchase more of it.