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20 June, 10:25

If a perfectly competitive firm is producing a quantity where MC > MR, then profit: is maximized. can be increased by increasing production. can be increased by decreasing production. can be increased by decreasing the price.

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  1. 20 June, 11:19
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    Profit can be increased by decreasing production.

    Explanation:

    Marginal cost is the change in total cost when quantity produced is increased by one extra unit. Marginal revenue is the change in total revenue when quantity produced is increased by one extra unit.

    Perfect competition is a market structure where there are many firms with ease of entry and exciting into and out of the market. They producing homogenous products and are price takers.

    If marginal costs are higher than marginal revenue, that means that with every extra unit produced, the cost of it is higher than the revenue made from it. Hence, if the firm wants to make higher profits, it can only be done if the firm reduces its production and produces at the quantity where MR = MC. The firm which may have been making very little profit or even a loss can now make normal profits, producing where the MC, AC and MR curves intersect, and D is equal to MR = AR.
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