If marginal cost exceeds marginal revenue, the firm a. is most likely to be at a...

Question

Question

If marginal cost exceeds marginal revenue, the firm

	a.	is most likely to be at a profit-maximizing level of output.
	b.	should increase the level of production to maximize its profit.
	c.	should reduce its average fixed cost in order to lower its marginal cost.
	d.	may still be earning a positive accounting profit.

business economics

Answer 1

Answer #1

Answer

Option d

may still be earning a positive accounting profit.

A firm maximizes profit at MR=MC

where

MR is a downward sloping curve, and MC is an upward sloping curve.

The MC>MR and to equal it needs to decrease output and increase the price.

At this point, the firm may be earning accounting profit but it is not maximizing profit up to it decreases output to MR=MC level.

Answer 2

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