Question

If marginal cost exceeds marginal revenue, a. the firm can increase profits by increasing output b....

If marginal cost exceeds marginal revenue,

a.

the firm can increase profits by increasing output
b.

the firm will lower profits by increasing output
c.

the firm is maximizing profits
d.

average cost equals average revenue
e.

total cost exceeds total revenue
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Answer #1

If marginal cost exceeds the marginal revenue then it means firms can increase profits by reducing output so by this option (A) and (B) is wrong. Also If MC>MR then it means the firm may still be earning a profit. Then option (C) is also wrong. If MC>MR then AC is not equal to AR,in this AC is greater than AR. So option (D) also wrong.

As a result option (E) is correct that TC > TR, Because at TR < TC this happens when firms make losses and profits are negative,and MR<MC is also show that firms making loss. So this the correct option is TC>TR.It implies That when MR < MC it means TR < TC.

So, option (E) is correct answer.

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