If a firm is producing an output level at which marginal revenue exceeds marginal cost in the short run, the firm will increase profits by reducing its output level.

Question

Quizplus · Accepted Answer

If marginal revenue exceeds marginal cost, it means that the firm is earning additional revenue from producing one more unit of output than the cost incurred in producing it. Therefore, reducing the output level would decrease the firm's revenue and hence decrease profits. The firm should continue producing this output level or increase it further to maximize profits.

If a Firm Is Producing an Output Level at Which