When marginal cost exceeds marginal revenue,

Question

Quizplus · Accepted Answer

When marginal cost exceeds marginal revenue, it means that the cost of producing one additional unit of output is more than the revenue earned from producing and selling that additional unit. This results in a marginal profit that is negative, meaning that producing and selling that additional unit will lead to a loss. Therefore, the best choice in this scenario is to not produce the additional unit and reduce output to a level where marginal cost equals marginal revenue, ensuring that the firm is maximizing its profits.

When Marginal Cost Exceeds Marginal Revenue