Suppose, at its current output level, a firm's marginal profit is positive. Therefore, to maximize profit, it should:
A) decrease output until marginal profit is zero.
B) increase output because MR is less than MC.
C) increase both its output and its price.
D) increase output because MR is greater than MC.
E) increase output until it is producing at full capacity.

Question

Quizplus · Accepted Answer

If a firm's marginal profit is positive, it means that each additional unit produced adds more to the total profit than the cost of producing it. Thus, the firm should continue to increase its output until the marginal profit becomes zero. This is because marginal profit is maximized when MC=MR. Since the marginal profit is positive, it means MR is greater than MC, and therefore the firm should keep increasing its output until the two are equal. Therefore, choice D is the correct option.

Suppose, at Its Current Output Level, a Firm's Marginal Profit