Chapter 10R, Problem 5MCQ

To determine

The level of production where the firms maximize their profit.

Answer to Problem 5MCQ

(b) Increase output.

Explanation of Solution

The firm is producing at the level where the marginal revenue is higher than the marginal cost. It means the firm can earn more additional revenue than the increment in the costs. Hence, there is a scope to earn more profit by increasing the output to the level where the marginal revenue becomes equal to the marginal cost. Hence, option (b) is correct.

Option (a) is incorrect because if the firm continues to produce at that level, then the profit will remain the same and will not get maximized.

Option (c) and (e) are incorrect because if the firm decreases its output and lower prices, then the profit will decline.

Option (d) is incorrect because if a firm raises prices, then output demand falls which led to falling in profit.

Economics Concept Introduction

Introduction:

A firm’s profit is maximized at the level where the difference between total revenue from sales and the total cost is highest. Also, in marginal analysis. The profit of a firm is maximized where the cost of producing an additional unit is equal to the additional revenue earned by the sale of the product.