When price is greater than marginal cost for a firm in a competitive market, a. marginal cost must be falling. b. the firm must be minimizing its losses. c. there are opportunities to increase profit by increasing production. d. the firm should decrease output to maximize profit.

Question

Vance Watts

Business

20 November, 23:16

When price is greater than marginal cost for a firm in a competitive market, a. marginal cost must be falling. b. the firm must be minimizing its losses. c. there are opportunities to increase profit by increasing production. d. the firm should decrease output to maximize profit.

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Answers (1)

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Sidney Hickman · Answer 1

c. there are opportunities to increase profit by increasing production.

Explanation:

Marginal cost is the increase in total cost from production one additional unit. When more units of goods are produced, the marginal cost includes all other cost are required to produced additional units of goods. Firm continue to produce goods till marginal revenue (MR) ≥ marginal cost (MC), as firm has to cover up the cost of production. Similarly, if price of goods is greater than marginal cost, then it an opportunity of firm to increase profit by producing more goods.