A Level Economics AQA Practice Exam

When does profit maximization occur for a firm?

1. When total costs exceed total sales

2. When total sales revenue matches total costs

3. When total sales revenue is furthest above total costs

4. When total sales revenue is minimized

The correct answer is: When total sales revenue is furthest above total costs

Profit maximization for a firm occurs when the difference between total sales revenue and total costs is at its greatest. This means that the firm is generating the highest possible profit from its operations. To achieve this, a firm should focus on increasing its sales revenue while managing its costs effectively. When sales revenue exceeds total costs significantly, the firm is operating at a profit level that is optimal, thus maximizing profitability. In contrast, the other choices identify conditions that do not reflect profit maximization. For instance, when total costs exceed total sales, the firm operates at a loss; matching total sales revenue with total costs indicates the break-even point where no profit is made; and minimizing total sales revenue does not align with the goal of maximizing profit. Therefore, identifying the scenario where total sales revenue is furthest above total costs clearly indicates the point of profit maximization.