Question

Suppose a firm is producing a level of output such that MR > MC. What should be firm do to maximize its profits?

• A. The firm should do nothing.
• B. The firm should hire less labour.
• C. The firm should increase price.
• D. The firm should increase output.

Answer 1

Answer: (D)

The firm should increase output.

In a competitive market, the firm maximize it's profit when the marginal cost of the firm is equal to marginal revenue of the firm.

Therefore, the firm should increase its output in order to maximize its profit.