If a potato farmer expands output, he finds that the increase in total revenue is less than the increase in total costs. This means that:
A) profit is being maximized.
B) he should not have expanded output.
C) he should produce even more output.
D) the firm is wasting resources.

Question

Quizplus · Accepted Answer

If the increase in total revenue is less than the increase in total costs, it means that the marginal cost of producing additional potatoes is greater than the marginal revenue from selling them. This implies that the farmer is not making as much profit from the additional production as he is from existing production levels. Therefore, it would not be optimal to expand output further and the farmer should not have expanded output in the first place.

If a Potato Farmer Expands Output, He Finds That the Increase