Question

Which of the following statements best expresses a firm’s profit-maximizing decision rule? a. If marginal revenue is greater than marginal cost, the firm should increase its output. b. If marginal revenue is less than marginal cost, the firm should shut down in the short run. c. If marginal revenue equals marginal cost, the firm should produce exactly one more unit of output. d. All of the above are correct.

Answer 1

Answer:

The correct answer is letter "A": If marginal revenue is greater than marginal cost, the firm should increase its output.

Explanation:

Marginal revenue is the return of producing one more unit of a given product. Its marginal costs are the expenses incurred while producing one more sample. Only when the marginal revenue is higher than the marginal cost, it is reasonable for the company to increase production levels.