If a profit- maximising firm is producing where marginal revenue is below zero, while its average revenue is positive, it should:
A) reduce the price of its product and increase output
B) remain at its current level of production
C) increase the price of its product and decrease output
D) cease production

Question

Quizplus · Accepted Answer

When marginal revenue is below zero, the firm is losing money on additional units produced. To maximize profit, it should increase the price and decrease output to where marginal revenue is zero or positive.

If a Profit- Maximising Firm Is Producing Where Marginal Revenue