Question

Suppose a perfectly competitive firm is producing 37 units output, and the marginal cost of the 37th unit is $3. If the firm can sell each unit of output for $5 and the firm's revenue is sufficient to cover its variable cost, the firm should:__________.

A. lower its price.
B. decrease production.
C. increase production.
D. raise its price.

Answer 1

correct option C. increase production.

Step-by-step explanation:

given data

producing = 37 units

marginal cost MC = $3

sell MR = $5

solution

the profit is maximum at MR = MC ..............1

and here MR = $5 and MC = $3

then production should be increased up to the MC = MR = $5

so correct option is C. increase production