If a profit-maximizing firm is producing an output level in which marginal revenue exceeds marginal cost,...

If a profit-maximizing firm is producing an output level in which marginal revenue exceeds marginal cost, should it produce more, less or the same? Why? What is the profit-maximizing quantity for any firm to produce?

Solutions

Expert Solution

If a profit-maximizing firm is producing an output level in which marginal revenue exceeds marginal cost, should it produce more.

If a firm is trying to maximize its profits, it should consider what happens when it changes its production by one more unit. The firm will of incur an extra cost from producing an extra unit (which is called MC), and it will also receive revenue from that extra unit (which is called MR). If the MC is greater than the MR received, then the firm should realize that producing an extra unit of output is not profitable. Thus, the firm should reduce some of its production. On the other hand, if the MC is less than the MR, then it is profitable for the firm to produce an extra unit of output. The firm should continue to produce extra units of output as long as the MR it receives from that unit equals the MC (i.e. MR = MC). This is the point at which the firm should keep production constant, because producing an extra unit beyond this point leads to a higher MC than MR.

Thus, the profit-maximizing quantity for any firm to produce is the quantity where MR = MC

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

why is the level of output at which marginal revenue equals marginal cost the profit maximizing...

why is the level of output at which marginal revenue equals marginal cost the profit maximizing output?

Why is the level of output at which marginal revenue equals marginal cost the profit maximizing...

Why is the level of output at which marginal revenue equals marginal cost the profit maximizing output?

1.If the firm is producing at a quantity of output where marginal cost exceeds marginal revenue,...

1.If the firm is producing at a quantity of output where marginal cost exceeds marginal revenue, then ________. (there can be multiple answers.) A)the firm should reduce production B)each marginal unit adds profit by bringing in more revenue than its cost C)the firm's perceived demand will shift to the left D)the excess profit would attract additional competition 2.In what way(s) is a monopolistically competitive firm inefficient?(there can be multiple answers.) A) It does not produce at the minimum of its...

Why will a profit-maximizing firm never choose to produce at a quantity where marginal cost exceeds marginal revenue?

Why will a profit-maximizing firm never choose to produce at a quantity where marginal cost exceeds marginal revenue?a. Draw the marginal cost/marginal revenue graph and use it to help you explain.b. Which two lines on a cost curve diagram intersect at the zero-profit point?

What is the profit maximizing level of output for a firm with the marginal cost function MC

What is the profit maximizing level of output for a firm with the marginal cost function MC = 1.6Q2-15Q+60 and a marginal revenue function MR = 280-20Q?

Suppose a firm is producing a level of output such that marginal revenue is equal to...

Suppose a firm is producing a level of output such that marginal revenue is equal to marginal cost. The firm is selling its output at a price of $6 per unit and is incurring average variable costs of $7 per unit and average total costs of $8 per unit. Given this information, it may be concluded that the firm: Group of answer choices is operating at maximum total profit is operating at a loss that could be reduced by shutting...

1. Firm X is producing the quantity of output at which marginal revenue equals marginal cost....

1. Firm X is producing the quantity of output at which marginal revenue equals marginal cost. It is earning A. a positive economic profit. B. an economic loss. C. a normal profit. D,There is not enough information to answer the question. 2. A perfectly competitive firm will always maximize short-run profits by producing the level of output where the average total cost is minimized. A.True B.False

At the current level of output, a profit-maximizing firm in a competitive market earns average revenue...

At the current level of output, a profit-maximizing firm in a competitive market earns average revenue of $25, has an average total cost of $22 and an average variable cost of $17. If the firm's marginal cost curve is equal to its average total cost curve at an output level of 20,000 units, then the firm earns profit of $60,000 at its current level of output. True False The short-run supply for a firm in a perfectly competitive market will...

For competitive firms, they set marginal cost equal to market price at profit-maximizing level of output....

For competitive firms, they set marginal cost equal to market price at profit-maximizing level of output. In the short run, marginal revenue curve faced by a competitive firm is downward-sloping. Competitive firms always produce a positive amount of output in the short run (q > 0). Competitive firms earn zero economic profit in the long run equilibrium. All these are True False Questions

Figure below shows the cost structure of a firm in a perfectly competitive market. If the market price is $40 and the firm is currently producing the profit maximizing output level, the firm's profit is

Figure below shows the cost structure of a firm in a perfectly competitive market. If the market price is $40 and the firm is currently producing the profit maximizing output level, the firm's profit is

Subjects