Mike,of Mike's Machines has hired a consultant who informs Mike that since the total revenue from current operations exceeds total cost,he should consider increasing production of machines.Mike would be best off if he
A) increases production of machines until total revenue is equal to total cost.
B) increases production until net gains are equal to zero.
C) maintains his current level of production so long as marginal revenue is equal to marginal cost.
D) decreases his current level of production if marginal revenue is equal to marginal cost.

Question

Quizplus · Accepted Answer

The consultant's advice suggests that Mike should increase production. However, the best approach is to produce where marginal revenue equals marginal cost because this will result in the maximum profit. This means that Mike should maintain his current level of production so long as marginal revenue is equal to marginal cost, as stated in choice C. Choice A is incorrect because increasing production until total revenue is equal to total cost may result in producing beyond the point of profit maximization. Choice B is incorrect because net gains being equal to zero does not necessarily mean that profit is maximized. Finally, choice D is incorrect because decreasing production would result in a loss of potential profit.

Mike,of Mike's Machines Has Hired a Consultant Who Informs Mike