If current output is less than the profit-maximizing output, which must be true?
A) Total revenue is less than total cost.
B) Average revenue is less than average cost.
C) Average revenue is greater than average cost.
D) Marginal revenue is less than marginal cost.
E) Marginal revenue is greater than marginal cost.

Question

Quizplus · Accepted Answer

If current output is less than the profit-maximizing output, it means that producing and selling one more unit of the product will increase total profit, which occurs when marginal revenue (the revenue from selling one more unit) is greater than marginal cost (the cost of producing one more unit). This is because, at the profit-maximizing level of output, marginal revenue equals marginal cost.

If Current Output Is Less Than the Profit-Maximizing Output, Which