A competitive firm is currently producing a quantity of output at which marginal revenue exceeds marginal cost. In order to increase its profit, the firm should
A)increase the price of the good that it produces and sells.
B)increase its quantity of output.
C)decrease its total cost.
D)decrease its average total cost.

Question

Quizplus · Accepted Answer

Marginal revenue exceeding marginal cost means that the firm can increase its profit by producing and selling more units of output. Therefore, the best choice for the firm is to increase its quantity of output. Option A is incorrect because increasing the price would lead to a lower quantity demanded and possibly lower profit. Option C is incorrect because decreasing total cost would lead to higher profits only if it does not decrease quantity produced. Option D is incorrect because decreasing average total cost may increase profit, but it does not ensure that profit will be maximized.

A Competitive Firm Is Currently Producing a Quantity of Output