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.

Question

Quizplus · Accepted Answer

A firm should increase its production when its marginal revenue exceeds its marginal cost. This means that producing an additional unit of output will generate more revenue than the cost of producing that unit, leading to an increase in overall profits. If a firm increases production when its revenues are too low to cover fixed costs or when there is a fall in the price of its product, it may actually end up losing money due to increased expenses without a corresponding increase in revenue.

When Should a Firm Increase Its Production