Question: Which of the following is the first-order condition for profit maximization in economics?
A Marginal Revenue (MR) equals Marginal Cost (MC)
B Average Total Cost (ATC) is minimized
C Price (P) is greater than Average Variable Cost (AVC)
D Total Revenue (TR) is maximized
Answer: Marginal Revenue (MR) equals Marginal Cost (MC)
| Condition | Description |
| Marginal Revenue (MR) equals Marginal Cost (MC) | · It is the first-order condition for profit maximization. · It implies that producing one more unit of output increases revenue by the same amount as it increases cost. |
| Total Revenue (TR) exceeds Total Cost (TC) | · Profit maximization occurs when total revenue from producing and selling goods or services is greater than the total cost of production. |
| Price (P) exceeds Average Variable Cost (AVC) | · A firm should produce as long as the price per unit exceeds the average variable cost per unit. |
| Producing at the point of lowest Average Total Cost (ATC) | · Firms aim to produce at the level where average total cost is minimized, allowing for higher profit margins. |
| Satisfying market demand and consumer preferences | · Meeting customer demand and providing products or services that align with consumer preferences |
| Adaptation to changing market conditions | · Firms must be flexible and responsive to evolving market conditions, adjusting production levels and strategies as needed. |
| Effective cost management and resource allocation | · Efficient use of resources and cost control are vital for maximizing profits by reducing production expenses. |