If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then
A)average revenue exceeds marginal cost.
B)the firm is earning a positive profit.
C)decreasing output would increase the firm's profit.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

If the firm is producing at a level where MC > MR, then it is not maximizing profit. To maximize profit, the firm should produce where MC = MR. Since decreasing output would lead to a decrease in MC and an increase in MR, the firm should decrease output to reach the profit-maximizing level. Therefore, only C is correct. A is incorrect because if AR exceeds MC, then the firm is not maximizing profit. B is incorrect because if the firm is producing at a level where MC > MR, it is not earning a positive profit.

If a Competitive Firm Is Currently Producing a Level of Output