Question

If a perfectly competitive firm is producing a quantity where MC > MR, then profit: is maximized. can be increased by increasing production. can be increased by decreasing production. can be increased by decreasing the price.

Answer 1

Answer:

Profit can be increased by decreasing production.

Explanation:

Marginal cost is the change in total cost when quantity produced is increased by one extra unit. Marginal revenue is the change in total revenue when quantity produced is increased by one extra unit.

Perfect competition is a market structure where there are many firms with ease of entry and exciting into and out of the market. They producing homogenous products and are price takers.

If marginal costs are higher than marginal revenue, that means that with every extra unit produced, the cost of it is higher than the revenue made from it. Hence, if the firm wants to make higher profits, it can only be done if the firm reduces its production and produces at the quantity where MR = MC. The firm which may have been making very little profit or even a loss can now make normal profits, producing where the MC, AC and MR curves intersect, and D is equal to MR = AR.

Answer 2

Answer:

In this case,the answer would be the third option from the answer or options list provided in the question or can be increased by decreasing production.

Explanation:

• In a perfectly competitive market structure,individual firms or sellers maximize at the phase or point in production where the marginal revenue of production or MR is equal to the marginal cost of production or MC,which is also equal to the per unit price of the concerned good or service or P.Each firm or seller in a perfectly competitive market is a price taker and has no control over the market price determination for the concerned good or service.
• In this case,the MC is greater than MR,indicating that the particular firm or seller in this case,is actually experiencing marginal loss for each unit of sold that it produces or sells or in other words,the additional revenue generated from selling one more unit of the output is actually less than the additional or incremental cost or expense incurred by the firm to produce that particular additional unit of the output.This essentially reduces the overall or total profit of the firm or seller.
• Hence,the firm or the seller is witnessing an additional loss in every unit of output it produces and sells in the market.Thus,the firm or seller in this case is better off not producing or decreasing its existing level of output and restore the point or phase production where MC=MR.
• By decreasing production level and restoring the production phase corresponding to MC=MR,the firm or the seller in this case,will be able to maximize its total or overall profit level.