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When should a firm increase its production?

When should a firm increase its production?

  1. A. When it is earning a positive profit.
  2. B. When its revenues are too low to cover the firm's fixed costs.
  3. C. When there is a fall in the price of its product.
  4. D. When its marginal revenue exceeds its marginal cost.


Mike, of Mike's Machines has hired a consultant who informs Mike that since the total revenue from current operations exceeds total cost, he should consider increasing production of machines. Mike would be best off if he

  1. A. increases production of machines until total revenue is equal to total cost.
  2. B. increases production until net gains are equal to zero.
  3. C. maintains his current level of production so long as marginal revenue is equal to marginal cost.
  4. D. decreases his current level of production if marginal revenue is equal to marginal cost

Top Answer

D. When its marginal revenue exceeds its marginal cost. The reason for this is that profit maximization occurs... View the full answer

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