Question

If the firm is producing at a quantity of output where marginal revenue is less than marginal cost, then, ________.

A. the firm's perceived demand will shift to the right
B. each marginal unit adds profit by bringing in less cost than its revenue
C. the firm should reduce production.

Answer 1

C. the firm should reduce production.

Step-by-step explanation:

Marginal revenue is defined as the additional profit that a business makes from the sale of extra unit of a product.

If marginal revenue is more than marginal cost the business is making profit and it should increase production. This will increase profit.

However if the marginal revenue is less than the marginal cost, it means the business is making a loss. The best action is to reduce level of production up to the point where marginal revenue exceeds marginal cost.