What is the rule of profit maximization?

Understand the Problem

The question is asking about the concept of profit maximization, which is a fundamental principle in economics that determines the condition under which a firm's profit is maximized. This involves understanding how firms make decisions regarding production and pricing to achieve the highest possible profit.

Answer

A firm maximizes profit by producing the quantity of output where marginal revenue equals marginal cost (MR = MC).

The final answer is: The general rule of profit maximization is that a firm maximizes profit by producing the quantity of output where marginal revenue equals marginal cost (MR = MC).

Answer for screen readers

The final answer is: The general rule of profit maximization is that a firm maximizes profit by producing the quantity of output where marginal revenue equals marginal cost (MR = MC).

More Information

Profit maximization is a key concept in microeconomics and forms the basis of many business strategies. Firms analyze marginal costs and marginal revenue to determine the optimal level of production.

Tips

A common mistake is to confuse total revenue and marginal revenue with total cost and marginal cost. Always ensure to differentiate between total and marginal figures.

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