Question

a firm is currently producing 5 units at a total cost of 500 the firm is considering increasing production to 6 units and observes this increase in production will cost an additional 80 versus an additional revenue of 90__________.

Answer 1

The firm will increase production in this case

Step-by-step explanation:

Producer is at equilibrium when : Marginal Revenue MR = Marginal Cost MC

• If MR < MC : Additional revenue from production is less than additional cost ; so additional production is loss making. So, it won't be done.
• If MR > MC : Additional revenue from production is more than additional cost ; so additional production will increase total profit. So, production will be increased.

Case of MR i.e 90 > MC i.e 80 depicts additional production profitability, so production will be increased.