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

-Suppose that ABC Industries, a perfectly competitive firm, currently produces 500 units of imitation ham spread for a total cost of $1,500. The marginal cost of the 500th unit is $20, and the marginal revenue of the 500th unit is $15. To maximize profits, Cheapo Industries should:
A)continue to produce 500 units.
B)produce more than 500 units but less than 1500 units.
C)produce less than 500 units.
D)produce more than 1500 units.
E)stop producing at 500 units.

Question

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2
 
-Suppose that ABC Industries, a perfectly competitive firm, currently produces 500 units of imitation ham spread for a total cost of $1,500. The marginal cost of the 500th unit is $20, and the marginal revenue of the 500th unit is $15. To maximize profits, Cheapo Industries should:
A)continue to produce 500 units. 
B)produce more than 500 units but less than 1500 units. 
C)produce less than 500 units. 
D)produce more than 1500 units. 
E)stop producing at 500 units.

Quizplus · Accepted Answer

To maximize profits, a perfectly competitive firm should produce at the quantity where marginal revenue equals marginal cost.

Since the marginal revenue of the 500th unit is $15 and the marginal cost is $20, producing more units would increase total cost by more than total revenue, reducing profits. Therefore, the firm should produce less than 500 units to increase profit.

The Table Given Below Reports the Marginal Revenue and Marginal