When should a firm increase its production? a

Economics Dec 15, 2020

When should a firm increase its production?

a. When it is earning a positive profit,

b. When its revenues are too low to cover the firm's fixed costs,

c. When there is a fall in the price of its product,

d. When its marginal revenue exceeds its marginal cost.

Expert Solution

The answer is d. When its marginal revenue exceeds its marginal cost.

This is because, for the cost necessary to produce one more unit (i.e. the marginal cost), the sales proceeds (i.e. the marginal revenue) will be greater. Therefore, by producing that extra item, the firm is increasing its total profit.

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