Answer the following questions: a. Suppose that a firm is producing where 0 < MR <...

Answer the following questions: a. Suppose that a firm is producing where 0 < MR < MC. What would happen to total revenue, total cost, and profit if the firm produced one less unit of output? b. Suppose that a firm is producing where MR > MC. What would happen to total revenue, total cost, and profit if the firm produced one more unit of output? c. If a firm produces the next unit of output, total revenue rises from $12,000 to $13,500 and the marginal cost of the next unit is $1,700. Should the firm produce the next unit of output? Question 34 options:

Expert Solution

A firm is producing at a level where MR<MC

Marginal revenue is the additional revenue earned by sale of one additional unit of good

Marginal cost is the additional cost of producing one more unit of good

When a firm produces one less unit it's TR will fall as MR is positive, TC will fall as MC is positive, the profit will rise as the reduction is cost is more than the reduction in revenue.

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When MR>MC then with production of one more unit, TR will rise, TC will also rise, while profit will increase as change in revenue is greater than the change in cost.

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MR is the change in TR = 13500 - 12000 = 1500

MC = 1700

Since MR < MC the firm should not produce more it's profit will fall from production of additional unit.

Rahul Sunny answered 2 years ago

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