Question

As long as the marginal cost of selling one more subscription is less than the marginal revenue, what should the firms do?

Answer 1

If marginal cost is less than marginal revenue, the firm should expand production up to the point where MR = MC; if marginal cost exceeds marginal revenue, the firm should reduce output to where MR = MC.

Step-by-step explanation:

If the firm is producing at a quantity of output where marginal revenue exceeds marginal cost, then the firm should keep expanding production, because each marginal unit is adding to profit by bringing in more revenue than its cost. In this way, the firm will produce up to the quantity where MR = MC.

However, if the firm is producing at a quantity where marginal costs exceed marginal revenue, then each marginal unit is costing more than the revenue it brings in. In this case, the firm will increase its profits by reducing the quantity of output until MR = MC.