AutoEdge hires a new economic analyst who decides to compute marginal profit for each product line. What might cause AutoEdge to stop producing a certain auto part erroneously?

AutoEdge will stop producing a certain auto part when its marginal profit becomes zero.

Explanation:

Marginal profit is the difference between the marginal cost of production and marginal revenue earned from the sale of the same. Marginal profit is supposed to occur when an additional unit of product or auto part is sold.

When these increment in profit stops, then the economic analyst at AutoEdge knows that it is time to stop producing additional units of the auto part. This is because increasing output no longer tends towards profit.

The new economic analyst at AutoEdge will advise management to stop increasing production when its marginal cost is equal to its marginal revenue because at that point the profit is maximized. This point where MC=MR is also the point where Marginal Profit equals zero.

This is called Shut Down point. Beyond this point, the marginal profit of the firm becomes negative. Hence any production activity carried out at this point will be termed erroneous.

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