A car wash owner is currently operating at a profit while providing 120 car washes per week. At this output level, marginal cost exceeds marginal revenue (MC > MR). To maximize profit, the owner shouldSelect an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aincrease output.bdecrease output.cleave output at 120 carwashes per week.
Question
A car wash owner is currently operating at a profit while providing 120 car washes per week. At this output level, marginal cost exceeds marginal revenue (MC > MR). To maximize profit, the owner shouldSelect an answer and submit. For keyboard navigation, use the up/down arrow keys to select an answer.aincrease output.bdecrease output.cleave output at 120 carwashes per week.
Solution
The owner should decrease output.
Here's why:
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The marginal cost (MC) is the cost of producing one additional unit of a good. In this case, it's the cost of washing one additional car.
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The marginal revenue (MR) is the additional revenue that an organization receives from selling one more unit of a good. In this case, it's the revenue from washing one additional car.
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If the MC is greater than the MR, it means that the cost of washing one additional car is more than the revenue gained from washing that car.
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Therefore, by decreasing output (washing fewer cars), the owner can reduce costs and increase the difference between revenue and cost, which will maximize profit.
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