The principle that a firm should produce until marginal revenue equals marginal cost is known as?

The principle that a firm should produce until marginal revenue equals marginal cost is known as the profit maximization rule. This fundamental concept in microeconomics guides firms in determining the optimal level of production. When a firm continues to produce additional units of a good, it must compare the additional revenue generated from selling each unit (marginal revenue) to the additional cost incurred from producing that unit (marginal cost).

If marginal revenue exceeds marginal cost, producing more units increases overall profit. However, once marginal revenue equals marginal cost, producing beyond this point would result in marginal costs exceeding marginal revenue, leading to reduced profits. Thus, the point where these two measures are equal represents the profit-maximizing output level for the firm.

The other options refer to different concepts in economics. Cost minimization relates to firms aiming to reduce costs for given levels of output, demand elasticity concerns how sensitive demand is to price changes, and output adjustment involves modifying production levels in response to changing market conditions. These concepts, while important, do not specifically address the relationship between marginal revenue and marginal cost used to find the profit-maximizing output level.