Which of the Following Offers the Best Explanation of Why

question 57

Multiple Choice

Which of the following offers the best explanation of why "marginal revenue equals marginal cost" is the rule that indicates the profit-maximizing output level?

• A) If output were reduced from the profit-maximizing level, then the firm would be gaining marginal revenue that exceeds marginal cost, and thus increasing the level of profit.
• B) If output were increased from the profit-maximizing level, then the firm would be gaining marginal revenue that is less than the marginal cost incurred in producing this additional unit, and thus reducing the level of profit.
• C) Because the firm colludes with other similar firms to set price equal to marginal cost.
• D) The marginal revenue is equal to the marginal cost at all levels of output for a perfectly competitive firm.

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Definitions:

Direct Labour Costs

Expenses related to employees who are directly involved in the production of goods or services.

Predetermined Overhead Rate

A rate used to allocate manufacturing overhead costs to individual units of production, based on estimated costs.

Direct Materials

These are raw materials that are directly traceable to the manufacturing of a product.

Direct Labour-Hours

The sum of working hours for employees actively participating in the manufacturing procedure.