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Which of the following rules should be followed by a supplier for profit maximization?
- a)Keep producing until the total revenue is equal to total cost.
- b)produce an additional unit of good if the price is greater than the marginal cost
- c)do not produce an additional unit if its marginal cost is higher than the marginal cost of the previously produced units
- d)Always produce an additional unit when the marginal revenue is greater than zero.
Correct answer is option 'B'. Can you explain this answer?
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Which of the following rules should be followed by a supplier for prof...
If the price is greater than the marginal cost of the next unit, the firm should continue production as there is a profit on producing the additional unit.
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Which of the following rules should be followed by a supplier for prof...
Profit Maximization for a Supplier: Rule B
Introduction:
Profit maximization is the primary objective of any supplier or firm in a competitive market. To achieve this objective, suppliers need to make decisions regarding production levels and pricing strategies. One of the key rules that a supplier should follow for profit maximization is outlined in option B: "produce an additional unit of good if the price is greater than the marginal cost." This rule is based on the principle of marginal analysis, which involves comparing the additional benefits and costs associated with producing one more unit.
Marginal Cost and Marginal Revenue:
To understand the rationale behind rule B, it is essential to grasp the concepts of marginal cost and marginal revenue. Marginal cost refers to the additional cost incurred in producing one more unit of a good or service. It includes factors such as labor, raw materials, and overhead expenses. Marginal revenue, on the other hand, represents the additional revenue generated from selling one more unit of output.
Explanation of Rule B:
The rule states that a supplier should produce an additional unit of a good if the price at which it can be sold exceeds the marginal cost of production. This is because producing an additional unit would result in a positive contribution to profit. Here's a detailed explanation of why this rule leads to profit maximization:
1. Comparing Price and Marginal Cost:
- Suppose a supplier has calculated the marginal cost of producing an additional unit of a good.
- The supplier should then compare this marginal cost with the price at which the good can be sold.
- If the price is greater than the marginal cost, it implies that the additional unit can be produced and sold at a profit.
2. Positive Contribution to Profit:
- When the price exceeds the marginal cost, producing an additional unit will result in additional revenue higher than the additional cost.
- This positive difference between the marginal revenue and the marginal cost contributes to increasing the supplier's profit.
3. Incremental Approach:
- By adopting an incremental approach and evaluating each additional unit's profitability, the supplier can ensure that production is optimized for profit maximization.
- If the price falls below the marginal cost, it indicates that producing an additional unit would lead to a loss. Hence, the supplier should refrain from producing it.
Conclusion:
In summary, option B, which states that a supplier should produce an additional unit of a good if the price is greater than the marginal cost, is the correct rule to follow for profit maximization. This rule aligns with the principle of marginal analysis and ensures that each additional unit contributes positively to the supplier's profit. By comparing the price and marginal cost, suppliers can make informed decisions about production levels and optimize their profitability in a competitive market.
Introduction:
Profit maximization is the primary objective of any supplier or firm in a competitive market. To achieve this objective, suppliers need to make decisions regarding production levels and pricing strategies. One of the key rules that a supplier should follow for profit maximization is outlined in option B: "produce an additional unit of good if the price is greater than the marginal cost." This rule is based on the principle of marginal analysis, which involves comparing the additional benefits and costs associated with producing one more unit.
Marginal Cost and Marginal Revenue:
To understand the rationale behind rule B, it is essential to grasp the concepts of marginal cost and marginal revenue. Marginal cost refers to the additional cost incurred in producing one more unit of a good or service. It includes factors such as labor, raw materials, and overhead expenses. Marginal revenue, on the other hand, represents the additional revenue generated from selling one more unit of output.
Explanation of Rule B:
The rule states that a supplier should produce an additional unit of a good if the price at which it can be sold exceeds the marginal cost of production. This is because producing an additional unit would result in a positive contribution to profit. Here's a detailed explanation of why this rule leads to profit maximization:
1. Comparing Price and Marginal Cost:
- Suppose a supplier has calculated the marginal cost of producing an additional unit of a good.
- The supplier should then compare this marginal cost with the price at which the good can be sold.
- If the price is greater than the marginal cost, it implies that the additional unit can be produced and sold at a profit.
2. Positive Contribution to Profit:
- When the price exceeds the marginal cost, producing an additional unit will result in additional revenue higher than the additional cost.
- This positive difference between the marginal revenue and the marginal cost contributes to increasing the supplier's profit.
3. Incremental Approach:
- By adopting an incremental approach and evaluating each additional unit's profitability, the supplier can ensure that production is optimized for profit maximization.
- If the price falls below the marginal cost, it indicates that producing an additional unit would lead to a loss. Hence, the supplier should refrain from producing it.
Conclusion:
In summary, option B, which states that a supplier should produce an additional unit of a good if the price is greater than the marginal cost, is the correct rule to follow for profit maximization. This rule aligns with the principle of marginal analysis and ensures that each additional unit contributes positively to the supplier's profit. By comparing the price and marginal cost, suppliers can make informed decisions about production levels and optimize their profitability in a competitive market.
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Which of the following rules should be followed by a supplier for prof...
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Which of the following rules should be followed by a supplier for profit maximization?a)Keep producing until the total revenue is equal to total cost.b)produce an additional unit of good if the price is greater than the marginal costc)do not produce an additional unit if its marginal cost is higher than the marginal cost of the previously produced unitsd)Always produce an additional unit when the marginal revenue is greater than zero.Correct answer is option 'B'. Can you explain this answer?
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Which of the following rules should be followed by a supplier for profit maximization?a)Keep producing until the total revenue is equal to total cost.b)produce an additional unit of good if the price is greater than the marginal costc)do not produce an additional unit if its marginal cost is higher than the marginal cost of the previously produced unitsd)Always produce an additional unit when the marginal revenue is greater than zero.Correct answer is option 'B'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Which of the following rules should be followed by a supplier for profit maximization?a)Keep producing until the total revenue is equal to total cost.b)produce an additional unit of good if the price is greater than the marginal costc)do not produce an additional unit if its marginal cost is higher than the marginal cost of the previously produced unitsd)Always produce an additional unit when the marginal revenue is greater than zero.Correct answer is option 'B'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which of the following rules should be followed by a supplier for profit maximization?a)Keep producing until the total revenue is equal to total cost.b)produce an additional unit of good if the price is greater than the marginal costc)do not produce an additional unit if its marginal cost is higher than the marginal cost of the previously produced unitsd)Always produce an additional unit when the marginal revenue is greater than zero.Correct answer is option 'B'. Can you explain this answer?.
Which of the following rules should be followed by a supplier for profit maximization?a)Keep producing until the total revenue is equal to total cost.b)produce an additional unit of good if the price is greater than the marginal costc)do not produce an additional unit if its marginal cost is higher than the marginal cost of the previously produced unitsd)Always produce an additional unit when the marginal revenue is greater than zero.Correct answer is option 'B'. Can you explain this answer? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about Which of the following rules should be followed by a supplier for profit maximization?a)Keep producing until the total revenue is equal to total cost.b)produce an additional unit of good if the price is greater than the marginal costc)do not produce an additional unit if its marginal cost is higher than the marginal cost of the previously produced unitsd)Always produce an additional unit when the marginal revenue is greater than zero.Correct answer is option 'B'. Can you explain this answer? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which of the following rules should be followed by a supplier for profit maximization?a)Keep producing until the total revenue is equal to total cost.b)produce an additional unit of good if the price is greater than the marginal costc)do not produce an additional unit if its marginal cost is higher than the marginal cost of the previously produced unitsd)Always produce an additional unit when the marginal revenue is greater than zero.Correct answer is option 'B'. Can you explain this answer?.
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