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15 May, 14:30

Which of the following statements is true a. A firm should increase quantity as long as price is greater than marginal cost. b. A firm should increase quantity as long as marginal revenue is greater than marginal cost c. A firm should increase quantity as long as average cost is greater than price d. A firm should increase quantity as long as price is higher than average cost, regardless of the marginal cost

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  1. 15 May, 15:29
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    B) A firm should increase quantity as long as marginal revenue is greater than marginal cost

    Explanation:

    A firm maximizes its accounting profit when the marginal revenue = marginal costs.

    Many times we believe that the price of a product is equal to the marginal revenue, but that is not correct due to distortions produced by taxes or other fees (e. g. credit or debit card fees).

    Marginal revenue = selling price - taxes or fees
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