When a firm is producing at an output level where marginal revenue (mr) equals marginal cost (mc), it is following:

• A. the shutdown rule
• B. the profit-maximizing rule
• C. the break-even rule
• D. the allocative efficiency rule

Answer: (B)

Verified step by step guidance

1. Understand the definitions of the key terms: Marginal Revenue (MR) is the additional revenue gained from selling one more unit of output, and Marginal Cost (MC) is the additional cost incurred from producing one more unit of output.
2. Recall the profit-maximizing rule in microeconomics, which states that a firm maximizes its profit by producing the quantity of output where MR equals MC, i.e., \(\text{MR} = \text{MC}\).
3. Recognize that the shutdown rule relates to whether a firm should continue operating in the short run, typically involving comparisons of price and average variable cost, not MR and MC equality.
4. Note that the break-even rule involves producing where total revenue equals total cost, which is different from the condition \(\text{MR} = \text{MC}\).
5. Understand that the allocative efficiency rule occurs when price equals marginal cost (\(P = MC\)), which ensures resources are allocated efficiently, but this is distinct from the profit-maximizing condition.