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In the raspberry farm example, marginal revenue exceeds marginal cost at an output around 40 or 50 packs. According to the source, what should the firm do?
ADecrease output, since MR above MC would cut profit
BShut down the firm immediately instead
CKeep output exactly the same forever more
DIncrease output, since MR above MC raises profit
Answer & Solution
Correct answer: D. Increase output, since MR above MC raises profit
1. Marginal revenue exceeding marginal cost means the next unit produced adds more to revenue than it costs.
2. Producing that additional unit therefore raises the firm's profit.
3. The firm can increase profit by increasing output in this situation.
4. Decreasing output or shutting down would instead give up profitable units the firm could still sell at a gain.
_Source: OpenStax Principles of Microeconomics for AP Courses (CC BY 4.0), Ch 8 "Perfect Competition", section 8.2 | How Perfectly Competitive Firms Make Output Decisions_
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