Which of the Following Offers the Fullest Explanation of Why

question 121

Multiple Choice

Which of the following offers the fullest explanation of why "price equals marginal cost" is the rule from marginal analysis that indicates the profit-maximizing output level?

• A) If output were reduced from the profit-maximizing level, then the firm would be giving up marginal revenue that exceeds marginal cost, and thus reducing 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) Both a. and b. above are correct.

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Definitions:

Maximization

Maximization involves choosing the best feasible option, given a set of constraints, to achieve the highest possible level of an objective, such as profit, satisfaction, or efficiency.

Decision-Making

The process of making choices by identifying a decision, gathering information, and assessing alternative resolutions.

Vivid Observations

Highly detailed and clear observations, typically used to convey intricate details in a way that is easy to visualize and understand.

Asymmetric Information

A scenario where one participant in a deal possesses greater or more advanced information than the other.