Question

At the profit-maximizing level of output, marginal profit :

a) may be positive, negative or zero.
b) is also maximized.
c) is positive.
d) is increasing.
e) is zero.

Answer 1

The profit-maximizing level of output is achieved when marginal profit is zero, which occurs where marginal revenue equals marginal cost (MR = MC). This point represents the maximum profit scenario, beyond which producing more will decrease total profits.

Step-by-step explanation:

At the profit-maximizing level of output, marginal profit is where marginal revenue equals marginal cost, which indicates that the correct answer to the question is e) is zero. This scenario describes the point at which producing any additional units would not increase total profit, as additional units would cost as much to produce as the revenue they generate. Furthermore, it implies that if marginal cost were to exceed marginal revenue, then each additional unit produced would diminish overall profits.

A perfectly competitive firm should produce up to the quantity where marginal revenue is equal to marginal cost (MR = MC), and the monopoly should seek out the profit-maximizing quantity where the MR and MC curves intersect. Producing more than this profit-maximizing quantity will result in reduced profits, as each additional unit's cost exceeds its revenue.