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What should firm do when Marginal revenue is greater than marginal cost?
- a)Firm should expand output
- b)Effect should be made to make them equal
- c)Prices should be covered down
- d)All of these
Correct answer is option 'A'. Can you explain this answer?
Most Upvoted Answer
What should firm do when Marginal revenue is greater than marginal cos...
When marginal revenue (MR) is greater than marginal cost (MC), it means that the firm is generating more revenue from selling an additional unit of output than the cost incurred in producing that unit. In such a scenario, the firm should expand its output to maximize its profits. Here are the reasons why:
1. Profit maximization: The ultimate goal of any firm is to maximize its profits. When MR>MC, producing one more unit of output will add more to the firm's revenue than its cost. Therefore, the firm should continue producing more output until MR=MC, which is the point of profit maximization.
2. Market demand: Marginal revenue is a function of market demand. When MR>MC, it indicates that the market is willing to pay a higher price for the additional output. Therefore, expanding output is a way of meeting the market demand and maximizing revenue.
3. Economies of scale: Expansion of output can lead to economies of scale, which means that the firm can produce more units at a lower cost per unit. This can further increase the firm's profitability.
4. Competitive advantage: Expanding output can also give the firm a competitive advantage by increasing its market share and reducing the cost per unit. This can help the firm to compete effectively with its rivals.
In conclusion, when MR>MC, the firm should expand its output to maximize profits, meet market demand, achieve economies of scale, and gain a competitive advantage.
1. Profit maximization: The ultimate goal of any firm is to maximize its profits. When MR>MC, producing one more unit of output will add more to the firm's revenue than its cost. Therefore, the firm should continue producing more output until MR=MC, which is the point of profit maximization.
2. Market demand: Marginal revenue is a function of market demand. When MR>MC, it indicates that the market is willing to pay a higher price for the additional output. Therefore, expanding output is a way of meeting the market demand and maximizing revenue.
3. Economies of scale: Expansion of output can lead to economies of scale, which means that the firm can produce more units at a lower cost per unit. This can further increase the firm's profitability.
4. Competitive advantage: Expanding output can also give the firm a competitive advantage by increasing its market share and reducing the cost per unit. This can help the firm to compete effectively with its rivals.
In conclusion, when MR>MC, the firm should expand its output to maximize profits, meet market demand, achieve economies of scale, and gain a competitive advantage.
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What should firm do when Marginal revenue is greater than marginal cos...
The reason behind this ans. is that when marginal revenue is grtr than marginal cost then a rational producer(firm) can still see profits in producing additional units of output as it can still earn more than its cost. firm will achieve max. profit only when mr =mc and after this point mc should be grtr than mr so that no firm will want toproduce more as it'ld have achieved max profit and producing beyond this will lead to loss
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What should firm do when Marginal revenue is greater than marginal cost?a)Firm should expand outputb)Effect should be made to make them equalc)Prices should be covered downd)All of theseCorrect answer is option 'A'. Can you explain this answer?
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What should firm do when Marginal revenue is greater than marginal cost?a)Firm should expand outputb)Effect should be made to make them equalc)Prices should be covered downd)All of theseCorrect answer is option 'A'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about What should firm do when Marginal revenue is greater than marginal cost?a)Firm should expand outputb)Effect should be made to make them equalc)Prices should be covered downd)All of theseCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What should firm do when Marginal revenue is greater than marginal cost?a)Firm should expand outputb)Effect should be made to make them equalc)Prices should be covered downd)All of theseCorrect answer is option 'A'. Can you explain this answer?.
What should firm do when Marginal revenue is greater than marginal cost?a)Firm should expand outputb)Effect should be made to make them equalc)Prices should be covered downd)All of theseCorrect answer is option 'A'. Can you explain this answer? for CA Foundation 2025 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about What should firm do when Marginal revenue is greater than marginal cost?a)Firm should expand outputb)Effect should be made to make them equalc)Prices should be covered downd)All of theseCorrect answer is option 'A'. Can you explain this answer? covers all topics & solutions for CA Foundation 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for What should firm do when Marginal revenue is greater than marginal cost?a)Firm should expand outputb)Effect should be made to make them equalc)Prices should be covered downd)All of theseCorrect answer is option 'A'. Can you explain this answer?.
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