Explain Why a Firm Maximizes Its Total Profits by Producing

question 25

Essay

Explain why a firm maximizes its total profits by producing where MC = MR.To answer this question completely,you should explain why output levels greater than and less than the level where MC = MR do not maximize profits.

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Definitions:

Marginal Product

The extra output, or increase in production, that results from adding one more unit of a specific input, while other inputs are kept constant.

Total Product

The total quantity of output produced by a firm over a given period of time.

Average Product

The output per unit of a particular input, calculated by dividing total output by the quantity of inputs.

Labor

Human effort, either physical or mental, used in the production of goods and services.