If a firm's marginal cost exceeds its marginal revenue, then: a

Economics Dec 15, 2020

If a firm's marginal cost exceeds its marginal revenue, then:

a. The firm's profit is negative,

b. The firm should shut down its operations,

c. Cutting back production will increase the firm's profit,

d. The firm should reduce its per-unit cost by increasing its output.

Expert Solution

The correct option is c. Cutting back production will increase the firm's profit,

If the marginal cost is higher than the marginal revenue then in that case the firm should cut back the total output in order to generate a higher profit and then mR=MC.

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