If a perfectly competitive firm is producing at an output at which marginal cost exceeds marginal revenue

Question

Quizplus · Accepted Answer

If marginal cost exceeds marginal revenue, the firm is producing beyond the profit-maximizing output level. This means that the cost of producing additional units is higher than the revenue generated from selling them. In order to maximize profits, the firm should reduce production until marginal cost equals marginal revenue, which is the point of profit maximization in a perfectly competitive market. Therefore, the best choice is option D: the firm should reduce production.

If a Perfectly Competitive Firm Is Producing at an Output