A firm's profits have significantly decreased despite an increase in production levels. What could be the underlying reason for this decline in profits?

When a firm raises production but sees profits fall, the most common culprit is that the extra output costs more than it earns, often because of diminishing returns or higher input prices. As production grows, each additional unit may need expensive labor, raw materials, or overtime, pushing marginal costs above marginal revenue. If the market price stays flat or drops, the extra cost erodes profit margins. For example, a factory that triples output by adding a shift might pay overtime wages that exceed the revenue from the extra cars it sells, leaving profits lower than before. Thus, higher production can hurt profits when added costs outweigh the added sales revenue.