Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Profit-maximizing output - The firm is maximizing profits as MR > MC leads to increased profits.
B
Socially optimal output - The firm is operating at a socially optimal level, ensuring maximum welfare.
C
Inefficient output - The firm should increase production to maximize profits as it is not at the optimal point.
D
Equilibrium output - The firm is at market equilibrium, balancing supply and demand.
Understanding the Answer
Let's break down why this is correct
Answer
When a monopolistic firm produces at a level where its marginal revenue is greater than its marginal cost, it is in a situation where it can increase its profits. Marginal revenue is the extra money the firm makes from selling one more unit, while marginal cost is the extra cost of producing that unit. If the marginal revenue is higher, it means the firm earns more from selling that unit than it spends to make it, so it should produce more to maximize its profits. For example, if a company makes $10 from selling one more toy but it only costs $5 to make, it would be wise to produce and sell that toy. This situation indicates that the firm is not maximizing its profit yet and should continue increasing production until marginal revenue equals marginal cost.
Detailed Explanation
When a firm has marginal revenue higher than marginal cost, it can make more money by producing more. Other options are incorrect because Some might think that higher revenue means the firm is maximizing profits; This option suggests the firm is helping society the most.
Key Concepts
Monopoly Output Levels
Marginal Revenue vs. Marginal Cost
Consumer Welfare
Topic
Monopoly Output Levels
Difficulty
hard level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.