IB Economics HL 2.11.2 Hl Rational Producer Behaviour Topic Practice

Profit maximizing level of output is 17000

At that level of output, MR=MC
N.B. A candidate cannot be awarded a mark for outlining the reason unless they have identified the correct level of output.

20000

At that level of output, MR=0

0 The work does not reach a standard described by the descriptors below.

1 The written response is limited.

For stating that if demand (AR) is inelastic then profits could be increased by reducing output and raising price.
- If candidate refers only to an increase in revenues then 1 mark may be awarded.

2 The written response is accurate.

For explaining that if demand (AR) is inelastic and price rises then TR will rise while, since less is produced, it follows that TC will fall. Hence decreasing output would increase profits. Therefore profits cannot be maximized while operating on the inelastic portion of the demand curve. OR Profit maximization requires that MR=MC. Since MR is negative in the inelastic region of a demand curve (lies below the horizontal axis) but MC cannot be negative it follows that MR and MC can be equated only in the elastic region.