How can producers maximize their profit?

How can producers maximize their profit?

a. They can work to increase their marginal cost.

b. They can work to decrease their marginal cost.

c. They can raise prices to increase marginal revenue.

d. They can lower prices to decrease marginal revenue.

e. They can keep marginal costs below marginal revenues.

f. They can keep marginal revenues below marginal costs.

Answer: e. They can keep marginal costs below marginal revenues.

In the case of a product market, profit maximization is one of the main and most known objectives that producers have in a competitive market. In order to attain this the producers ought to target a level where they get a higher marginal revenue, which is the revenue got from the sale of the next unit, than the marginal cost, which is the cost incurred in the production of the next unit. This is a popular principle that is referred to as the marginal revenue-marginal cost rule. A strategy of keeping marginal revenue above marginal cost results in the producer setting a new total revenue that is a faster rate than the total cost and therefore makes higher profits. When marginal cost is more than the marginal revenue the total costs or profits are reduced when more units of product are produced. Therefore, the logical producers will seek to continue with output augmentation as long as any MR that is more than MC in the process, generates adequate revenue profits.