Your business is producing bags of potato chips. Marginal product is falling. Marginal cost is $2. The price is $2.50. What should you do to maximize profits

increase production.

Explanation:

The law of diminishing returns states that in the production process when there is additional units produced it will lead to decreased returns on the cost incurred. That is the revenue keeps decreasing per unit of produce manufactured.

In the given scenario the business produces potato chips. Although marginal product is falling the marginal cost is $2 while the price is $2.50.

Price is still above cost, so an increase in production will result in profit till the point where price is the same as cost incurred then we should stop increasing production.