If a firm is using a factor of production from a perfectly competitive market such that MFC MRP, then profit:
A) is maximized.
B) can be increased by using less of the factor.
C) can be increased by using more of the factor.
D) can be increased by decreasing the factor price.

Question

If a firm is using a factor of production from a perfectly competitive market such that MFC > MRP, then profit:
A) is maximized.
B) can be increased by using less of the factor.
C) can be increased by using more of the factor.
D) can be increased by decreasing the factor price.

Quizplus · Accepted Answer

If MFC (marginal factor cost) is greater than MRP (marginal revenue product), then the cost of each additional unit of the factor is higher than the revenue generated by that unit. In this case, the firm is overusing the factor and should reduce its usage. By using less of the factor, the MRP will increase and move closer to MFC, which will lead to higher profits. Therefore, the best choice is B.

If a Firm Is Using a Factor of Production from a Perfectly