Economics question

V

vo

New member
Joined
Jun 18, 2026
Messages
0
Reaction score
0
If a profit-maximizing firm finds that its marginal revenue exceeds its marginal cost, the firm should:

A. increase output no matter whether the firm is a price taker or a price searcher.
B. decrease output no matter whether the firm is a price taker or price searcher.
C. increase output if the firm is a price taker but not necessarily if the firm is a price searcher.
D. increase output if the firm is a price searcher but not necessarily if the firm is a price taker.
 
Agreed with C.

Pricetaking firms will produce to a level where marginal revenue equals marginal cost, correct?
 
The answer is B. I'm not sure why.
 
profit is always maximized when MR= MC

Firm no matter who will earn the most profit if their MR= MC

if MR > MC,
firm should increaee output until MR=MC no matter what ever it is

for price takers, MR=P

D is the answer guys!
 
vo Wrote:
-------------------------------------------------------
> The answer is B. I'm not sure why.


B seems to be nonsense...why to decrease the output if MR is higher than MC (what means that there is more potential for output growth potential and still making money)
 
I would say D, based on my explanation below. But the poster said B is the right answer. That's perplexing.

For Price Takers:
Adjusting output doesn't affect MR, which is equal to Price for PTs. However, adjusting output does put you at a different place on your MC function. I'm not sure how you're supposed to know which side of the intersection of MC and P (optimal profit) that you're on. You obviously need to know that to figure out whether to scale output up or down.

For Price Searchers:
Profits will always be increased by expanding output as long as MR > MC. This will trend MR towards MC to realize the holy MR = MC relationship.

So, Price Searchers increase output while Price Takers may or may not. How is that for an elaborate wrong answer? Can someone please explain why B is correct??
 
why the ans can not be A , any company should increase output until MC=MR for get

more profit , so the ans is A. By the way I meet this question before , and i get confuse

so i post it somewhere , and the response is the ans of the book should be wrong
 
Agree with VC, answer is A. B being the correct answer is nonsense. Increase output for price searchers is a no brainer. For price taker firms, the MR is the market price. If the market price P=MR, and the MC is below P, then increase output until MC=P. Why not? If MR=market price= 12, and MC=10, increase output until the last unit produced produces revenue of 12.
 
when MR=MC, profit are maximum no matter which kind of market is. the reason is that you can earn more by producing more units since MR>MC. So A

open to discuss
 
I'm not suggesting that the answer is B. That is the answer the practice exam has.



Edited 1 time(s). Last edit at Wednesday, October 11, 2006 at 12:24AM by vo.
 
Vo, I realized from the outset that you were suspicious of the answer given, kudos.
 
Yeah, I agree with A now. The Price Searcher isn't the issue. I now agree, however, that output must be increased for the Price Taker as well.

Consider the features of a Price Taker illustration:

1) MR is a flat horizontal line, representing price of course, because it cannot be changed.
2) MC is a U-shaped curve starting with a negative slope at first (growing loss for small quantities produced) and then sloping upward as economies of scale are realized until it intersects with MR ... the sweet spot.

Here's the deal: to the left of the MR=MC point, you will always have MR>MC (what's in the problem statement). Therefore, you must increase output to reach MR=MC.

So the answer is that you increase output no matter what. Although it's interesting to note that if you are far to the left on the MC curve for a PT, you will experience greater losses before it turns around and climbs to optimal profit.
 
The answer is A.

Profit is never maximized unless MR = MC. This applies to both price searchers and price takers.

Here is a graphical representation from wikipedia:

http://en.wikipedia.org/wiki/Image:Perfect_competition_in_the_short_run.PNG
 
c'mon guys

cross reference to examflashback page 123 in schweser book 2...

it is so obvious
 
You must log in or register to reply here.
Back
Top