Suppose a plant manager ignores some implicit marginal costs of production so that the perceived MC curve is below the actual MC curve. What is the likely outcome from this error?
A) Firm produces less than optimal quantity and earns lower profits.
B) Firm produces less than optimal quantity and earns higher profits.
C) Firm produces more than optimal quantity and earns lower profits.
D) Firm produces more than optimal quantity and earns higher profits.

Question

Quizplus · Accepted Answer

If the plant manager ignores some implicit marginal costs of production, the perceived MC curve will be lower than the actual MC curve. As a result, the firm will produce more than the optimal quantity, leading to higher costs and lower profits. Therefore, option C is the best choice.

Suppose a Plant Manager Ignores Some Implicit Marginal Costs of Production