To maximize profits, a competitive firm increases its output as long as
A)total revenue is greater than total cost.
B)total revenue is less than total cost.
C)marginal revenue is less than marginal cost.
D)marginal revenue is greater than marginal cost.
E)marginal revenue is positive.

Question

Quizplus · Accepted Answer

In order to maximize profits, a firm must produce where marginal revenue (MR) equals marginal cost (MC). If MR is greater than MC, then producing an additional unit of output will increase profits. If MR is less than MC, then producing an additional unit of output will decrease profits. Therefore, the best choice is D, where the firm produces as long as MR is greater than MC.

To Maximize Profits, a Competitive Firm Increases Its Output as Long