Question

True or False with an explanation.

1. A firm should maximize its profits when unit costs of production are lowered to their minimum.

2. When marginal revenues are equal to marginal costs, a company is at its profit maximizing level of output.

3. For a concert ticket you win for free with no resale value, the marginal benefit of actually going to the concert must be at least $150, if the next best activity costs $50, but you value it at $200.

Answer 1

1. A firm should maximize its profits when unit costs of production are lowered to their minimum.

The given statement is False.

Reason - A firm maximizes profit when it produce that level of output corresponding to which the marginal cost equals the marginal revenue.

2. When marginal revenue are equal to marginal cost, a company is at its profit-maximizing level of output.

The given statement is True.

Reason - The profit-maximizing level of output of a firm is that level of output corresponding to which marginal cost equals the marginal revenue.

3. For a concert ticket you win for free with no resale value, the marginal benefit of actually going to the concert must be at least $150, if the next best activity costs $50, but you value it at $200.

The given statement is True.

Reason - The opportunity cost of an activity is the net benefit from the next best alternative. Net benefit from the next best alternative can be calculated by subtracting the cost of that activity from the maximum value accorded on that activity.