Question

Exhibit 8-9 A firm's cost and marginal revenue curves

ATC (dollars) AVC Quantity

In Exhibit 8-9, product price in this market is fixed at $14. This firm is currently operating where MR = MC. What do you advise this firm to do?

Group of answer choices

A. This firm should shut down.

B. This firm could increase profits by increasing output.

C. This firm could increase profits by decreasing output.

D. This firm should continue to operate at its current output.

E. This firm should decrease price.

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Answer #1

Answer

Option D

D. This firm should continue to operate at its current output.

A firm in the market produces at MR=MC if the P>AVC

P=$14 =MR=MC>AVC

so the firm operates to minimize losses as the loss is equal to fixed costs if the firm shut down and the loss is blow fixed cost if it operates so the firm continue to produce in the short run.

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