At current production levels,the marginal revenue of a competitive firm is $15 and the marginal cost of the firm is $15.The firm should
A) cut back on production.
B) stop production all together.
C) produce more.
D) continue producing at current levels.
E) raise its prices.

Question

Quizplus · Accepted Answer

The firm should continue producing at the current level because at that level, the marginal revenue equals the marginal cost. If the firm increases production, the marginal cost will exceed the marginal revenue, leading to losses. If the firm cuts back on production or stops producing altogether, it will lose potential revenue that could be earned at the current level of production. Raising prices is also not a viable option as the firm is operating in a perfectly competitive market where price is determined by the market forces.

At Current Production Levels,the Marginal Revenue of a Competitive Firm