Increase in output may increase the profits that firms receive, but it is not guaranteed. Here's an analysis of the factors involved:

Why it might:
➡️1. Higher output in response to increased demand: If the increase in output is driven by higher demand for the firm's products, it can lead to higher revenue. As the firm sells more units, the revenue generated will increase, potentially widening the gap between revenue and cost, resulting in higher profits.
➡️2. Elastic demand and lower price: If the firm decides to sell the higher output by lowering the price, it may lead to an increase in revenue if demand is elastic. Elastic demand means that a decrease in price will result in a proportionately larger increase in demand, which can boost overall revenue and potentially lead to higher profits.
➡️3. Economies of scale: A higher output level can enable a firm to take advantage of economies of scale. Economies of scale occur when the average cost of production decreases as output increases. This can be achieved through various factors such as bulk purchasing, specialization, or technological advancements. Lower average costs can contribute to higher profits, as the firm can achieve cost savings and potentially offer more competitive pricing.

Why it might not:
➡️1. Inelastic demand and lower price: If demand for the firm's products is inelastic, a decrease in price may result in a relatively smaller increase in demand. This can lead to a decrease in revenue despite the higher output, potentially impacting the firm's profits.
➡️2. Diseconomies of scale: While economies of scale can lead to cost reductions, it is also possible for a firm to experience diseconomies of scale as output increases. Diseconomies of scale occur when the average cost of production increases as output expands. This can happen due to factors such as coordination challenges, communication difficulties, or the need for additional resources. If the firm faces diseconomies of scale, the increase in output may raise average costs, potentially affecting profitability.
➡️3. Falling demand: If the increase in output occurs during a period of falling demand, it can result in lower revenue and potentially lead to losses. In such a situation, the increased output may not generate enough sales to cover the costs incurred, resulting in a decline in profitability.
👉Conclusion: While an increase in output has the potential to increase profits, it is dependent on several factors such as demand elasticity, cost structures, and overall market conditions. Higher output driven by increased demand, elastic demand with lower prices, and economies of scale can contribute to higher profits. However, inelastic demand, diseconomies of scale, or falling demand may limit the positive impact on profitability. It is essential for firms to consider these factors and carefully analyze the relationship between output, revenue, and costs to assess the potential impact on their profits.