Answer to Question #306066 in Microeconomics for Imtiaz

Question

5. If firm’s objective is to maximize total revenue at which point of the demand

curve will it produce and why?

Answer 1

The firm starts to receive maximum profits at the point where marginal revenue is equal to marginal cost, or the point before marginal costs starts to exceed marginal revenue. This is because marginal revenue depends on the marginal cost. For marginal revenue to increase, there must be an increase in the marginal cost. The point at where they intersect represents the maximum threshold at which any further stretch of the curves leads to an excess. This means that any further stretch of the marginal cost leads to excess product being produced while it also leads to loss of revenue.