Question:
In the short run, a perfectly competitive firm is producing where the marginal revenue is greater than the marginal cost. What should this firm do to maximize its short run profits?
(1) Increase the quantity they are producing.
(2) Decrease the quantity they are producing.
(3) Increase their marginal cost.
(4) Leave the industry.
(5) Increase production, so that $MC>MR$.
Correct Answer:
(1)
Answer Explanation:
Profit maximization is achieved at the point where Marginal Revenue equals Marginal Cost (MR=MC). If MR > MC, the firm is earning more on the next unit than it costs to produce, so it should increase output until they equalize.
Topic: Market Structures Year: 2023
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