Question

A firm should build an additional distribution center if ________. A. the revenue generated from building the distribution center is big B. the cost of building the distribution center is not too big C. the marginal revenue of building the distribution center is larger than the marginal cost of building it D. the revenue generated from building the distribution center is small

Answer 1

Answer: C. the marginal revenue of building the distribution center is larger than the marginal cost of building it

Step-by-step explanation:

A firm maximises Profit at a level where Marginal Revenue equals Marginal Cost.

If a situation arises where Marginal Revenue is greater than Marginal cost, Profit is not yet maximised and the firm is NOT producing enough goods and services and should increase their output until Marginal Revenue equals Marginal Cost.

If Option C holds true, the Firm SHOULD build another distribution center so as to produce until Marginal Revenue equals Marginal Cost and profit is maximised.