As the manager of a firm you calculate the marginal revenue is $152 and marginal cost is $200. You should:

Question

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In order to maximize profits, a firm should produce at the level where marginal revenue equals marginal cost. When marginal revenue is less than marginal cost, each additional unit produced results in a loss. Therefore, the firm should reduce output until marginal revenue equals marginal cost. Choice A is incorrect because expanding output would result in a higher marginal cost than marginal revenue, which would result in a loss. Choice B is incorrect because fixed costs are not relevant to this decision. Choice D is incorrect because expanding output until marginal revenue equals zero would result in a loss. Choice E is incorrect because reducing output beyond where marginal revenue equals zero would result in lost profits.

As the Manager of a Firm You Calculate the Marginal