Suppose a firm is comparing its marginal revenue (MR) and marginal cost (MC).What circumstances would cause the firm to expand its production?
A) if MR is greater than MC
B) if MR is less than MC
C) if MR equals MC
D) if MR equals 0

Question

Suppose a firm is comparing its marginal revenue (MR) and marginal cost (MC).What circumstances would cause the firm to expand its production?  
A) if MR is greater than MC 
B) if MR is less than MC 
C) if MR equals MC 
D) if MR equals 0

Quizplus · Accepted Answer

If MR is greater than MC, the firm is earning a profit on each additional unit produced, so it should expand production. If MR is less than MC or equal to MC, the firm is losing money on each additional unit produced and should decrease production. If MR equals 0, the firm should stop production as it is not making any profit.

Suppose a Firm Is Comparing Its Marginal Revenue (MR) and Marginal