Question 47

Increase production.

Given that the marginal revenue of $200 exceeds the marginal cost of $150, the firm is in a position where increasing production will enhance its profitability. The firm should thus take advantage of the opportunity to produce more smartphones.

A) Exit the market altogether.

Exiting the market is not a viable option for the firm since it is currently making a profit on each smartphone produced. With marginal revenue surpassing marginal cost, the firm is financially incentivized to remain in the market rather than exit.

B) Pause production.

Pausing production would prevent the firm from capitalizing on the profitable situation it is experiencing. Since the marginal revenue is greater than the marginal cost, pausing would mean forgoing potential profits that could be earned by increasing output.

C) Increase production.

Increasing production is the best action for the firm because the marginal revenue of $200 exceeds the marginal cost of $150. This indicates that for each additional smartphone produced, the firm would earn an extra $50 in profit, making it a strategically sound decision.

D) Decrease production.

Decreasing production would not be advisable, as it would reduce the firm's profit when it is currently able to earn more from each unit produced than it costs to produce them. This action would lead to missed opportunities for profit maximization.

Conclusion

Increasing production is clearly the most advantageous choice given the current marginal revenue and cost dynamics. All other options, such as exiting the market or pausing production, would hinder the firm's ability to optimize its profits, while decreasing production would be counterproductive in a profitable scenario. Thus, the firm's best course of action is to increase production to maximize gains.