When MR

Question

When MR < MC for a firm, the firm should

Quizplus · Accepted Answer

When MR < MC, it means that the last unit produced is costing more than the revenue it generates. Therefore, to maximize profits, the firm should reduce its level of output until MR = MC or until the point where marginal cost equals marginal revenue. If the firm stays at the same level of output, it will continue to incur losses. If it stops producing altogether, it will have no revenue at all. Increasing output would result in even greater losses unless the price is above the AVC.

When MR < MC for a Firm, the Firm Should