Profit maximization occurs when a firm expands output until

Profit maximization occurs when:

Solution

Profit maximization occurs when a firm expands output until marginal revenue is equal to marginal cost. If marginal revenue is greater than the marginal cost, then the firm should expand output since it earns additional profit. On the other hand, if marginal revenue is less than the marginal cost, then the firm incurs loss on additional unit of produced. So firm should decrease production. so option (b) is correct.