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Question

Which of the following rules should be followed by a supplier for profit maximization?


A

Keep producing until the total revenue is equal to total cost.

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B

produce an additional unit of good if the price is greater than the marginal cost

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C

do not produce an additional unit if its marginal cost is higher than the marginal cost of the previously produced units

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D

Always produce an additional unit when the marginal revenue is greater than zero.

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Solution

The correct option is B

produce an additional unit of good if the price is greater than the marginal cost


If the price is greater than the marginal cost of the next unit, the firm should continue production as there is a profit on producing the additional unit.


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