A firm wishing to maximize profits will increase production as long as expected marginal profit exceeds expected marginal loss.

Question

Quizplus · Accepted Answer

This is the profit maximization rule known as the "equimarginal principle". As long as the marginal profit from producing one more unit of output is higher than the marginal cost of that unit, the firm will continue to produce and sell that unit in order to increase profits. However, once the marginal cost exceeds the marginal profit, it is no longer profitable to produce additional units and the firm will stop increasing production.

A Firm Wishing to Maximize Profits Will Increase Production as Long