If a Profit- Maximising Firm Is Producing Where Marginal Revenue

question 160

Multiple Choice

If a profit- maximising firm is producing where marginal revenue is below zero, while its average revenue is positive, it should:

• A) reduce the price of its product and increase output
• B) remain at its current level of production
• C) increase the price of its product and decrease output
• D) cease production

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Definitions:

Marginal Revenue Product

Incremental income produced from the application of one additional unit of resources such as labor or capital.

Derived Demand

Demand for a commodity, service, etc., that is a consequence of the demand for something else.

Inputs Demand

The requirement for resources and materials necessary to produce goods and services in an economy.

Secondary Demand

The desire for products and services that derive from the demand for another product or service.