A profit-maximizing firm will attain its equilibrium at that level of output where?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → The excess of total revenue over total cost is maximum.
A profit-maximizing firm reaches equilibrium where profit = Total Revenue (TR) – Total Cost (TC) is maximum. This can also be shown in the marginal analysis approach, where equilibrium occurs when:
MR=MC
and
MC cuts MR from below.