A competitive firm should decrease output by one unit to increase profit if marginal cost exceeds marginal revenue, since this leads to eliminating less profitable or loss-inducing production.
- If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then the correct answer is c) a one-unit decrease in output will increase the firm's profit.
- This conclusion can be drawn because when marginal costs surpass marginal revenues, each additional unit of production adds more to cost than to revenue, hence reducing profits.
- As per the profit-maximization rule, a competitive firm will seek to adjust its output to the point where marginal revenue is equal to marginal cost (MR=MC).
- By reducing its output level slightly, the firm can eliminate the production of those units that cost more to make than they earn in revenue, thus increasing overall profitability.
Question:
8.If a competitive firm is currently producing a level of output at which marginal cost exceeds marginal revenue, then
Group of answer choices
a) total revenue exceeds total cost.
b) total cost exceeds total revenue.
c) a one-unit decrease in output will increase the firm's profit.
d) a one-unit increase in output will increase the firm's profit.