If at an output of 4,000 units, Sloan Company is making an economic profit and marginal profit is $20 per unit, the firm should
A)reduce output to maximize total profit.
B)increase output until marginal profit falls to zero.
C)do whatever is necessary to increase marginal profit.
D)There is not enough information to make a decision.

Question

Quizplus · Accepted Answer

At 4,000 units of output, Sloan Company is making an economic profit. This means that their total revenue exceeds their total costs, including both explicit (out-of-pocket) and implicit (opportunity) costs. Since marginal profit is positive at this level of output, it means that each additional unit sold adds more revenue than it costs to produce that unit. Therefore, the firm should continue to increase output until marginal profit falls to zero. At this point, total profit is maximized because any further increase in output would result in marginal cost exceeding marginal revenue, which would reduce the overall profit.

If at an Output of 4,000 Units, Sloan Company Is