Question

Figure 12-2 Costs Total cost and revenue Total revenue e C b 1,000 Quantity Refer to Figure 12-2. Suppose the firm is currently producing Q2goods. What happens if it increases production to Q3? A) It makes less profit. B) It breaks even. C) It has a lower loss. D) It will maximize the profit.

Answer 1

Answer

Option A

It makes less profit

The MR=MC is at profit maximum

The profit is maximum at a marginal profit equal to zero and marginal profit =MR-MC

MR-MC=0 then the profit is maximum which means at MR=MC

Profit=TR-TC

The profit is maximum when the TR and TC distance is highest and TR>TC

So it is maximum at Q2 units

At Q3 the distance is less than Q2 between TR and TC curve and TR>TC so the firm makes lower profits

===

The breakeven is at Q0 and Q4 where TR=TC

=====

The firm makes a loss at Q<Q0 and Q>Q4

As the TC>TR

========