Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Profit decreases
B
Profit remains the same
C
Profit increases
D
Profit becomes zero
Understanding the Answer
Let's break down why this is correct
Answer
When marginal revenue exceeds marginal cost, a firm's profit increases. Marginal revenue is the additional money the firm makes from selling one more unit of a product, while marginal cost is the extra cost incurred from producing that additional unit. If the firm can earn more from selling the unit than it costs to make it, it means that the sale contributes positively to overall profit. For example, if a company sells a toy for $20 (marginal revenue) and it costs $15 to produce it (marginal cost), the firm makes an extra $5 profit from that sale. Therefore, as long as marginal revenue is greater than marginal cost, the firm should continue to produce and sell more to maximize its profit.
Detailed Explanation
When marginal revenue is higher than marginal cost, the firm makes more money on each extra sale. Other options are incorrect because Some might think profit goes down, but that's not true here; It may seem like profit stays the same, but that's incorrect.
Key Concepts
Profit
Topic
Marginal Revenue and Profit Calculations
Difficulty
easy level question
Cognitive Level
understand
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