A Level Economics AQA Practice Exam

What occurs when marginal revenue is zero?

1. Profits begin to decline

2. Firm is maximising sales

3. Revenue maximisation is achieved

4. Production levels must be increased

The correct answer is: Revenue maximisation is achieved

When marginal revenue is zero, it signifies a specific point in the revenue curve where the additional revenue generated from selling one more unit of a good or service does not increase total revenue any further. This situation indicates that revenue maximisation has been achieved. At this stage, producing additional units would not contribute positively to total revenue; instead, it might start to incur costs without generating adequate returns, which is why firms would typically avoid increasing production beyond this point. Maximising revenue means that the firm has found the optimal quantity of output where selling more would not enhance their financial situation and might even lead to lower profit margins if associated costs are considered. Understanding this concept is crucial in analyzing firm behaviour in economics, particularly in the context of price-setting and production strategies in different market structures. The other options revolve around profit behaviours and potential actions but do not encapsulate the specific meaning of marginal revenue reaching zero as accurately as revenue maximisation does.