Grace produces widgets and accepts the market price of $10 per widget.Her marginal cost equals $8.50 per widget.To maximize revenue and produce an optimal amount Grace should
A)increase output.
B)decrease output.
C)shut down.
D)increase price.

Question

Quizplus · Accepted Answer

To maximize revenue, Grace should continue producing as long as her marginal revenue (which is equal to the market price of $10 in this case) exceeds her marginal cost. Since her marginal cost is only $8.50, she is making a profit of $1.50 per widget produced. Therefore, it would be optimal for Grace to increase output and continue producing as many widgets as possible to maximize her revenue.

Grace Produces Widgets and Accepts the Market Price of $10