If a production company discovers that the marginal cost of producing an additional unit is lower than the selling price, what does this indicate about their current production level?

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Seekh · Accepted Answer

If the marginal cost of an extra unit is lower than the selling price, it means each new unit sells for more than it costs to make. In that case the company can still raise its profit by making and selling more units. Therefore, the current production level is too low; the firm has not reached the point where marginal cost equals marginal revenue (the selling price). For example, if a product sells for $10 and the marginal cost to produce one more is $8, the company should keep producing until the cost rises to $10.

If a production company discovers that the marginal cost of producing an additional unit is lower than the selling price, what does this indicate about their current production level?

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