When marginal cost and marginal revenue both rise, what action should a firm take?

Multiple choice question for Supply and Demand. Select an option, then review the explanation below.

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The firm ought to raise production levelsThe firm should lower its outputAdditional details are needed to determine the appropriate responseThe firm should maintain its current output

Explanation

Since both marginal cost and marginal revenue are increasing, it is unclear whether the firm should increase or decrease output without knowing the relative rates of change or other market conditions. Therefore, more information is necessary to decide the best course of action.

Practice related questions from the same subject.

1.What is the typical shape of a demand curve?
2.What term describes a company earning profits beyond its normal profit level?
3.How does an increase in marginal cost affect output, and how does an increase in marginal revenue impact output?
4.Marginal revenue refers to the ________ resulting from producing an additional ________ of output.
5.What are firms generally assumed to do with their costs and profits?

When marginal cost and marginal revenue both rise, what action should a firm take?

Explanation

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