Firms in competitive industries should adhere to: 1) expanding output if MR MC, and 2) reducing output if MC MR.

Question

Firms in competitive industries should adhere to: 1) expanding output if MR > MC, and 2) reducing output if MC > MR.

Quizplus · Accepted Answer

This is the basic principle of profit maximization for firms operating in competitive industries. If marginal revenue (MR) is greater than marginal cost (MC), the firm should increase output until they are equal. If MC is greater than MR, the firm should reduce output until they are equal. This is because increasing or decreasing output beyond this point would result in lower profits for the firm.

Firms in Competitive Industries Should Adhere To: 1) Expanding Output