In monopoly and perfect competition,a firm should expand production when
A)Marginal revenue is below marginal cost.
B)Price is below marginal cost.
C)Marginal revenue is above marginal cost.

Question

Quizplus · Accepted Answer

In both monopoly and perfect competition, a firm should expand production as long as marginal revenue is higher than marginal cost. This is because producing an additional unit will increase revenue by the amount of marginal revenue, which is higher than the additional cost of producing that unit (which is marginal cost). Therefore, the firm will earn additional profit by expanding production. If marginal revenue is below marginal cost (as in option A), expanding production will lead to a decrease in total profit. If price is below marginal cost (as in option B), the firm is already operating at a loss, and expanding production will only increase the losses.

In Monopoly and Perfect Competition,a Firm Should Expand Production When