Under which condition would an increase in the quantity of cantaloupes produced likely raise profits?

Under which condition would an increase in the quantity of cantaloupes produced likely raise profits?

• A. Marginal Revenue > Marginal Cost
• B. Price falls
• C. Demand is perfectly elastic
• D. Fixed costs rise

Answer: (A)

The main idea is that a producer should expand output as long as the extra revenue from one more unit exceeds the extra cost of producing that unit. This is the rule that guides profit optimization: increase production when Marginal Revenue is greater than Marginal Cost, and stop when they are equal. So, if selling one more cantaloupe brings in more money than it costs to produce that additional cantaloupe, profits rise with the increase in quantity. When Marginal Revenue exceeds Marginal Cost, you’re adding more profit with each extra unit. If price falls, the revenue gained from each additional cantaloupe shrinks, making it less likely that Marginal Revenue stays above Marginal Cost. A perfectly elastic demand implies price stays the same regardless of quantity, but it doesn’t guarantee that the extra unit adds more revenue than its extra cost. Raising fixed costs only changes total costs and reduces overall profitability unless it’s offset by enough higher revenue, which isn’t about the incremental decision to produce one more unit.

The main idea is that a producer should expand output as long as the extra revenue from one more unit exceeds the extra cost of producing that unit. This is the rule that guides profit optimization: increase production when Marginal Revenue is greater than Marginal Cost, and stop when they are equal. So, if selling one more cantaloupe brings in more money than it costs to produce that additional cantaloupe, profits rise with the increase in quantity. When Marginal Revenue exceeds Marginal Cost, you’re adding more profit with each extra unit.

If price falls, the revenue gained from each additional cantaloupe shrinks, making it less likely that Marginal Revenue stays above Marginal Cost. A perfectly elastic demand implies price stays the same regardless of quantity, but it doesn’t guarantee that the extra unit adds more revenue than its extra cost. Raising fixed costs only changes total costs and reduces overall profitability unless it’s offset by enough higher revenue, which isn’t about the incremental decision to produce one more unit.