Suppose a perfectly competitive firm is producing 37 units output, and the marginal cost of the 37^th unit is $3. If the firm can sell each unit of output for $5 and the firm's revenue is sufficient to cover its variable cost, the firm should:

Question

Quizplus · Accepted Answer

Since the marginal cost is less than the price, the firm should increase production to take advantage of the additional marginal revenue generated by selling one more unit. This will increase the firm's profit as long as the additional revenue from selling an additional unit is greater than the additional cost incurred to produce that unit. Therefore, option C, which involves increasing production, is the best choice in this scenario.

Suppose a Perfectly Competitive Firm Is Producing 37 Units Output