If you were the owner of a price-taker firm operating at an output level where the marginal cost of producing another unit was $5, and the market price was $7, then you
A) could increase your profit by expanding output.
B) could increase your profit by decreasing output.
C) are maximizing your profit at your current output level.
D) will be able to earn positive economic profits in the long run.

Question

Quizplus · Accepted Answer

Since the market price exceeds the marginal cost of production, the firm can increase its profit by producing and selling more units. The additional revenue generated by selling an additional unit (market price of $7) exceeds the additional cost of producing that unit (marginal cost of $5), resulting in more profit. Therefore, the firm should expand output to increase profit.

If You Were the Owner of a Price-Taker Firm Operating