Question

A general rule of thumb for profit- or utility maximization is to: a.) operate where marginal benefit equals marginal cost. b.) operate where marginal cost exceeds marginal benefit c.)ignore opportunity costs d.)operate where marginal benefit exceeds marginal cost

Answer 1

Profit maximisation is one of the major goals of any firm. Most firms try to maiximise their profits.

Profit = Revenue - cost.

So the profit would be maximised at the level of quantity where the marginal revenue is equal to marginal cost. Marginal revenue is the revenue gained when one unit of additional unit is produced and marginal cost is the cost when an additional revenue is produced. They should be equal to maximise the utility or profit.

Hence answer would be option A) Operate when marginal revenue equals marginal cost.

(you can comment for doubts)