If a potato farmer expands output, he finds that the increase in total revenue is less than the increase in total costs. This means that:
A) profit is being maximized.
B) he should not have expanded output.
C) he should produce even more output.
D) the firm is wasting resources.
E) the farmer should go out of business.

Question

Quizplus · Accepted Answer

When the increase in total revenue is less than the increase in total costs, the farmer is experiencing diminishing marginal returns. This means that each additional unit produced is becoming more expensive and generating less revenue, resulting in lower profits or even losses. Thus, it would not be wise to expand output further and incur even higher costs. The farmer should consider reducing output to a level where the marginal revenue equals marginal cost to maximize profits.

If a Potato Farmer Expands Output, He Finds That the Increase