HKICPA QP Module 3 Business Economics Practice Questions - HKICPA Qualification Programme Associate Level Module 3 Business Economics (Hong Kong) Exam

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A firm currently produces 100 units of a product, with a total cost of HKD 10,000. When production is increased to 101 units, the total cost rises to HKD 10,120. If the marginal revenue of selling the 101st unit is HKD 150, what should the firm do?

Decrease production because marginal cost exceeds average cost Maintain production at 100 units because total profits are already maximized Increase production to 101 units because marginal revenue exceeds marginal cost Increase production because average cost is decreasing

Correct Answer:

Increase production to 101 units because marginal revenue exceeds marginal cost

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