If price is greater than marginal cost,a perfectly competitive firm should increase output because
A)Marginal costs are increasing.
B)Additional units of output will add to the firm's profits (or reduce losses).
C)The price it receives for its product is increasing.
D)Total revenues would increase.

Question

Quizplus · Accepted Answer

If price is greater than marginal cost, each additional unit of output will contribute more to revenue than to cost, therefore increasing output will add to the firm's profits (or reduce losses). Marginal costs and total revenues may or may not be increasing in this situation, but the main reason for the firm to increase output is the potential for increased profits.

If Price Is Greater Than Marginal Cost,a Perfectly Competitive Firm