Suppose, at its present rate of output, a perfectly competitive firm's marginal revenue exceeds both its marginal cost and its average variable cost.To maximize profit, the firm should

Question

Quizplus · Accepted Answer

Since marginal revenue exceeds both marginal cost and average variable cost, the firm is not yet producing at the profit-maximizing output level, which occurs at the output level where marginal revenue equals marginal cost. Therefore, to maximize profit, the firm should increase output until marginal revenue equals marginal cost. This will result in even higher profits, as long as marginal revenue remains above average variable cost.

Suppose, at Its Present Rate of Output, a Perfectly Competitive