The profit maximizing rule is to set:

The profit maximizing rule is to set:

• A. MR = MC
• B. MR > MC
• C. MC > MR
• D. MC = MR and MR > MC

Answer: (A)

Profit is maximized where the extra revenue from selling one more unit equals the extra cost of producing that unit. This means marginal revenue equals marginal cost. If MR is greater than MC, producing another unit adds more to revenue than it adds to cost, so profits rise by expanding output. If MC is greater than MR, each extra unit would reduce profit, so trimming output increases profit. Fixed costs don’t affect this adjustment because they don’t change with output; only the incremental (marginal) values matter. In many markets, marginal revenue equals price, so the profit-maximizing level is where price equals marginal cost. The other options describe movements in output that would either continue to increase profit or decrease it, rather than stopping at the optimum.

Profit is maximized where the extra revenue from selling one more unit equals the extra cost of producing that unit. This means marginal revenue equals marginal cost. If MR is greater than MC, producing another unit adds more to revenue than it adds to cost, so profits rise by expanding output. If MC is greater than MR, each extra unit would reduce profit, so trimming output increases profit. Fixed costs don’t affect this adjustment because they don’t change with output; only the incremental (marginal) values matter. In many markets, marginal revenue equals price, so the profit-maximizing level is where price equals marginal cost. The other options describe movements in output that would either continue to increase profit or decrease it, rather than stopping at the optimum.