A ﬁrm is producing an output of 500 units. The revenue from an additional unit sold is £6, while the marginal cost of producing each unit is £5. In order to maximize proﬁts, the ﬁrm should:
A) reduce the number of units produced.
B) continue to produce the same number of units.
C) increase output beyond 500 units.
D) reduce its variable costs.

Question

Quizplus · Accepted Answer

Since the marginal revenue (£6) from selling an additional unit is greater than the marginal cost (£5) of producing that unit, increasing output will increase profits.

A ﬁRm Is Producing an Output of 500 Units