Question 41

Increase production

Given that the marginal revenue of producing a smartphone is $200, which exceeds the marginal cost of $150, the firm is in a position to increase its production. This scenario indicates that each additional unit produced contributes positively to the firm's profit.

A) Increase production

This option is correct because the firm can earn a profit of $50 for each additional smartphone produced, as the marginal revenue exceeds the marginal cost. Increasing production will allow the firm to maximize its overall profits in this situation.

B) Pause production

This option is incorrect as pausing production would mean the firm misses out on the opportunity to earn additional profit. With the marginal revenue greater than marginal cost, there is no rationale for halting production when the firm can benefit from producing more.

C) Exit the market altogether

This option is incorrect because exiting the market would not be a sensible decision when the firm is currently able to generate profits from its production. There is no indication of long-term losses that would necessitate leaving the market.

D) Decrease production

This option is incorrect since reducing production would lead to a decrease in profits. The firm currently experiences a favorable scenario with higher marginal revenue than marginal cost, suggesting that decreasing output would not be advantageous.

Conclusion

Increasing production is the best course of action for the firm, as it allows for profit maximization given the favorable marginal revenue and marginal cost conditions. All other options either fail to capitalize on the profit potential or suggest actions that could harm the firm's financial standing.