US CMA Part 2 · Chapter 6 · Question 10 of 22
Under marginal analysis, a profit-maximizing firm should increase output up to the point at which:
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) Marginal revenue equals marginal cost
Explanation
Profit increases as long as each extra unit adds more to revenue than to cost (marginal revenue > marginal cost). Profit is maximized where marginal revenue equals marginal cost. Total revenue is maximized where marginal revenue is zero, which is generally beyond the profit-maximizing output.
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