alleryA firm is currently at an output where MR > MC. To maximise profit, the firm should:
AIncrease output
BDecrease output
CKeep output unchanged
DShut down immediately
Answer & Solution
Correct answer: A. Increase output
1. Each extra unit adds MR to revenue and MC to cost.
2. When MR exceeds MC, an extra unit adds more to revenue than to cost.
3. So producing more raises profit until MR falls to equal MC.
4. Therefore the firm should increase output.
_Source: ICAI BoS CA Foundation Paper 4 Business Economics, Ch 4 Unit III "Price-Output Determination under Different Market Forms", p.4_
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