A profit-maximizing firm in a competitive market will decrease production when marginal cost exceeds average revenue?

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03-08-2022
Business

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A profit-maximizing firm in a competitive market will decrease production when marginal cost exceeds average revenue?

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smecloudbird18 smecloudbird18 · Answer 1 · 2022-08-11T12:23:07+02:00

A profit-maximizing firm in a competitive market will decrease production when average revenue exceeds marginal cost equals price. In this case, the goal is for marginal revenue to equal marginal cost.

The marginal cost of production and marginal revenue are economic measures used to determine how much output and price per unit of a product will maximize profits. Total production costs include all expenses associated with manufacturing products at current levels.

A rational company will always try to squeeze out as much profit as possible, and the relationship between marginal revenue and marginal cost of production assists them in determining when this occurs.

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