A profit-maximizing firm will continue to expand output:
A) as long as the revenues from the production and sale of an additional unit exceeds the average cost of the unit.
B) until the average cost of producing the good or service is at a minimum.
C) as long as the revenues from the production and sale of an additional unit exceeds the marginal cost of the unit.
D) until the marginal cost of producing a good or service is at a minimum.

Question

Quizplus · Accepted Answer

A profit-maximizing firm will produce more as long as the marginal revenue (MR) from the production and sale of an additional unit exceeds the marginal cost (MC) of producing that unit. This is because when the MC is less than MR, the firm can earn a profit on the additional unit. Therefore, statement C is correct. On the other hand, statement A is incorrect because it refers to the average cost (AC) instead of marginal cost. Statement B is incorrect because it does not take into account the marginal cost and revenue. Finally, statement D is incorrect because the marginal cost does not necessarily need to be at a minimum for the firm to produce more, as long as it is less than the marginal revenue.

A Profit-Maximizing Firm Will Continue to Expand Output