A purely competitive firm is producing at the point where its marginal cost equals the price of its product. If the firm increases its output, then total revenue will
A) increase and profits will increase.
B) decrease and profits will increase.
C) increase and profits will decrease.
D) decrease and profits will decrease.

Question

Quizplus · Accepted Answer

When a purely competitive firm increases output beyond the point where marginal cost equals price, total revenue will increase because more units are sold. However, profits will decrease because the additional units cost more to produce than the revenue they generate, as marginal cost exceeds price.

A Purely Competitive Firm Is Producing at the Point Where