14. (Points: 2) Assume that the Law of Diminishing Marginal Product applies atth

Question

14.

(Points: 2) Assume that the Law of Diminishing Marginal Product applies atthe current output level of a competitive firm. The priceis $20 and, at the current output level, marginal cost is $16 andaverage total cost is $20. To maximize profits the firm should:

a. produce the current output level,since average revenue (price) = average cost.
b. produce more since marginal revenueexceeds marginal cost at current output.
c. produce less since marginal revenue is alwaysbelow average revenue.
d. any of the above is possible, without furtherinformation.

14.

(Points: 2) Assume that the Law of Diminishing Marginal Product applies atthe current output level of a competitive firm. The priceis $20 and, at the current output level, marginal cost is $16 andaverage total cost is $20. To maximize profits the firm should:

a. produce the current output level,since average revenue (price) = average cost.
b. produce more since marginal revenueexceeds marginal cost at current output.
c. produce less since marginal revenue is alwaysbelow average revenue.
d. any of the above is possible, without furtherinformation.

Explanation / Answer

b. produce more since marginal revenue exceeds marginal cost at current output.

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