1 Assume marginal costs are rising at all levels of output I

1. Assume marginal costs are rising at all levels of output. If profits are maximized by a firm, whether monopolistic or perfectly competitive,

A. output should be increased whenever marginal cost is below average total cost.

B. output should be increased whenever marginal revenue is less than marginal cost.

C. output should be increased whenever marginal revenue exceeds marginal cost.

D. the firm should produce at a level where marginal cost is equal to average total cost.

E. We have insufficient information to answer this question.

Solution

C. output should be increased whenever marginal revenue exceeds marginal cost

if MR > MC, firm should increase output because than only profit maximizing point is achieved where MR=MC.

in case of perfect competition, MR is constant and MC is rising with output. if MR> MC, this means MC needs to increase to be equal to MR and achieve profit maximizing output.

in case of monoploistic competition , MR is decreasing with output and MC is rising, if MR> MC, for achieving equality , MR needs to decrease and MC needs to increase. for that output needs to increase.