Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs:
-Refer to Table 14-9. If the firm's marginal cost is $5, it should
A)reduce fixed costs by lowering production.
B)increase production to maximize profit.
C)decrease production to maximize profit.
D)maintain its current level of production to maximize profit.

Question

Table 14-9
Suppose that a firm in a competitive market faces the following revenues and costs: 
-Refer to Table 14-9. If the firm's marginal cost is $5, it should
A)reduce fixed costs by lowering production. 
B)increase production to maximize profit. 
C)decrease production to maximize profit. 
D)maintain its current level of production to maximize profit.

Quizplus · Accepted Answer

The firm should produce where marginal cost equals marginal revenue to maximize profit. In this case, the marginal revenue is highest at a quantity of 7, where it equals $19. At a marginal cost of $5, the firm is still earning a positive profit since the marginal revenue is greater than the marginal cost. Therefore, the firm should increase production to maximize profit.

Table 14-9 Suppose That a Firm in a Competitive Market Faces the Faces