Question

A profit-maximizing firm in the short run will expand output___________ a.until marginal cost begins to rise b.until total revenue equals total cost c.until marginal cost equals average variable cost d.as long as marginal revenue is greater than marginal cost

Answer 1

A profit-maximizing firm will expand output in the short run until marginal revenue equals marginal cost, as this is the point where profit is maximized.

Step-by-step explanation:

A profit-maximizing firm in the short run will expand output as long as marginal revenue is greater than marginal cost. This is because each additional unit of output adds to the firm's profit so long as the revenue from selling that unit exceeds the cost of producing it. The firm will continue to increase output until the point where marginal revenue equals marginal cost (MR = MC), as producing beyond this point would result in marginal costs that exceed the marginal revenues, thus reducing profit.

If a firm is producing at a quantity where marginal costs exceed marginal revenue, it would benefit from reducing its production until MR = MC is achieved. This principle applies regardless of the market structure, but it's particularly relevant in perfectly competitive markets where price equals marginal revenue.