Association of Chartered Certified Accountants (ACCA) Certification Practice Test

At what point on the supply curve will a profit-seeking supplier be willing to produce?

1. At the point where average cost equals marginal revenue

2. At the point where marginal cost equals total revenue

3. At the point where marginal costs equal marginal revenue

4. At the point where average variable cost equals marginal cost

The correct answer is: At the point where marginal costs equal marginal revenue

A profit-seeking supplier will be willing to produce where marginal costs equal marginal revenue. This intersection is critical because it indicates the quantity of goods that maximizes profit. When the marginal cost of producing one additional unit is equal to the marginal revenue gained from selling that unit, the supplier has no incentive to either increase or decrease production. Producing beyond this point would mean the cost of producing an additional unit exceeds the revenue earned from its sale, resulting in diminished profits. Conversely, producing below this point means the supplier is missing out on potential revenue that exceeds the costs. This principle forms a foundational concept in economics, specifically within the theory of supply and demand, implying that the firm is optimizing its production to ensure maximum profitability in the competitive market. Understanding this relationship assists suppliers in making informed production decisions.