Question

____________total revenue is maximized at the equilibrium point.

Answer 1

Total revenue in a perfectly competitive market is maximized at the equilibrium point, where the difference between total revenue and total cost is the greatest. This quantity of output corresponds with the situation where price equals marginal cost. It signifies the profit-maximizing output level on the premise of diminishing marginal returns.

Step-by-step explanation:

In economics, specifically within the context of a perfectly competitive market, total revenue is maximized at the equilibrium point where the quantity of goods produced and sold generates the largest excess of total revenue over total cost. This scenario transpires when the price of the good, which is also the marginal revenue for a perfectly competitive firm, is equal to the marginal cost of production. At this equilibrium point, firms can achieve maximum profit, as any additional unit produced would not add as much to revenue as it would add to the cost, thus diminishing profits.

When output increases, total revenue increases at a constant rate, given the market price. However, total costs begin to slope upward more steeply due to the principle of diminishing marginal returns, which states that adding more of one factor of production, while holding all others constant, will at some point yield lower per-unit returns. The difference between total revenue and total cost is the greatest at the profit-maximizing quantity, signifying the highest possible profits for the firm. If a firm's market price is above the average cost at this quantity, the firm realizes profits; if below, it incurs losses.

Answer 2

In a perfectly competitive market, total revenue does not necessarily equate to profit maximization at the equilibrium point. Profit is maximized where marginal cost equals marginal revenue, which is also where the gap between total revenue and total cost is largest.

Step-by-step explanation:

Total revenue is maximized at the equilibrium point, which occurs when a firm's marginal revenue is equal to its marginal cost. In the context of a perfectly competitive firm, the total revenue curve is a straight line with a slope representing the constant price of the good.

However, the total cost curve is more complex; it slopes upward and becomes steeper at higher levels of output due to diminishing marginal returns.

Therefore, the equilibrium point, or the point where profit is maximized, is not necessarily where total revenue is maximized.

Instead, total revenue exceeds total costs by the greatest amount at the equilibrium point, which is also where the marginal revenue equals marginal cost.