Profit from a production decision increases as long as which condition holds?

Profit from a production decision increases as long as which condition holds?

• A. True
• B. False
• C. Only When ATC is Exceeded
• D. Only When Price is Fixed

Answer: (A)

The main idea is how to decide whether adding one more unit of production increases profit. That depends on marginal revenue (MR) and marginal cost (MC) for that extra unit. If the revenue from the next unit is greater than the cost to produce it (MR > MC), starting that unit raises profit. You keep producing as long as MR > MC. When MR = MC, profit from additional units stops changing, and you’re at the profit-maximizing level of output. If MR < MC, adding another unit would reduce profit, so you would produce fewer units. In markets where price is given (perfect competition), MR equals price, so you compare price to MC and continue producing while price exceeds MC. Price equal to MC is the tipping point for maximum profit. So saying that profit from a production decision increases as long as this condition holds is true, because it’s describing the incremental logic of MR versus MC. The other statements don’t capture that rule: just having price cover ATC or price being fixed doesn’t determine whether each additional unit adds to profit in the same precise way.

The main idea is how to decide whether adding one more unit of production increases profit. That depends on marginal revenue (MR) and marginal cost (MC) for that extra unit.

If the revenue from the next unit is greater than the cost to produce it (MR > MC), starting that unit raises profit. You keep producing as long as MR > MC. When MR = MC, profit from additional units stops changing, and you’re at the profit-maximizing level of output. If MR < MC, adding another unit would reduce profit, so you would produce fewer units.

In markets where price is given (perfect competition), MR equals price, so you compare price to MC and continue producing while price exceeds MC. Price equal to MC is the tipping point for maximum profit.

So saying that profit from a production decision increases as long as this condition holds is true, because it’s describing the incremental logic of MR versus MC. The other statements don’t capture that rule: just having price cover ATC or price being fixed doesn’t determine whether each additional unit adds to profit in the same precise way.