The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2

-If a firm's marginal revenue is greater than its marginal cost, then:
A)each added unit of output will reduce profits.
B)the firm is maximizing profit.
C)an increase in output will add more to revenue than to cost.
D)an increase in output will add more to cost than to revenue.
E)a fall in output will add more to revenue than to cost.

Question

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2
 
-If a firm's marginal revenue is greater than its marginal cost, then:
A)each added unit of output will reduce profits. 
B)the firm is maximizing profit. 
C)an increase in output will add more to revenue than to cost. 
D)an increase in output will add more to cost than to revenue. 
E)a fall in output will add more to revenue than to cost.

Quizplus · Accepted Answer

If a firm's marginal revenue is greater than its marginal cost, it means that each additional unit of output will increase the firm's revenue more than it will increase its cost. Therefore, adding more units of output will increase profit, and the firm should continue to increase production until marginal revenue and marginal cost become equal. This is the point at which profit is maximized.

The Table Given Below Reports the Marginal Revenue and Marginal