Question

If a perfectly competitive firm is producing a quantity where MC < MR, then profit:

Select one:

a. can be increased by decreasing production.

b. is maximized.

c. can be increased by increasing production.

d. can be increased by decreasing the price.

Answer 1

C) when marginal revenue is more than marginal cost a perfectly competitive firm can maximise it's profits by increasing it's production level .

When MR> MC it implies that the firm is producing too little and can earn additional revenue by producing additional quantity of good so it can increase it's production and produce at the point where MR = MC

And as in perfectly competition MR = Price level

Firm will increase it's production level till MR = MC = Price and profits are maximised .