Answer to Question #315942 in Microeconomics for vyce

Question

.If marginal revenue is greater than marginal cost:

A. it will pay the firm to expand production.

B. the firm should leave the level of production unchanged.

C. the firm should cut back on production.

D. profit is at a maximum.

E. only normal profit will be possible.

Answer 1

The correct answer is A. It will pay the firm to expand production.

The monopolist uses the marginal principle when deciding what output to create. According to this idea, the profit-maximizing output is one in which marginal revenue equals marginal cost. If the monopolist's marginal revenue exceeds his marginal cost, he should boost output.

By assessing the marginal income and marginal expenses of manufacturing an extra unit, a monopolist may estimate its profit-maximizing price and quantity. If the firm's marginal revenue exceeds its marginal cost, it can boost profits by generating one additional unit of production. This is according to cost-benefit analysis.