Final answer:
Rapido's situation implies that currently marginal cost (MC) is greater than marginal revenue (MR), which means the company is not producing at the profit-maximizing level. Economic theory dictates that the company should expand production until MR equals MC to maximize profits, suggesting that Rapido's current output is below this optimum point.
Step-by-step explanation:
The company Rapido, which holds monopoly power and is considering reducing prices by 20% based on the advice of their marketing experts, is facing a decision about their production levels. Drawing on economic principles, we can address whether the current output level is where marginal cost (MC) is equal to marginal revenue (MR), or if there is a discrepancy.
When MR > MC, a profit-seeking firm should expand production to increase profit until MR = MC, which is the profit-maximizing level of output. Since Rapido has been advised by its marketing experts that lowering the price (thus potentially increasing MR) could lead to higher profits, it suggests that currently MR < MC and Rapido is not producing at the profit-maximizing output level.
Accordingly, the economic theory suggests that the firm should seek out the profit-maximizing level of output by adjusting its output level until reaching a point where MR = MC.
This rule does not require the firm to calculate the total revenue or total cost but simply to adjust the output based on the relationship between marginal cost and marginal revenue. In Rapido's case, since a reduction in price can lead to an increase in profits, it indicates that the firm should increase production, which means currently MC is greater than MR, so MC > MR.