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Exhibit 8-11 A firm's cost and marginal revenue curves

МC P MR = 8 8 АТC 7 6 Cost revenues 5 P MR 5 (dollars) 4 AVC 3 P MR 2 2 1 7 8 0 4 10

In Exhibit 8-11, when the price is $5, the firm:

Group of answer choices

A. is making an economic profit of $21.

B. should produce output equal to 10.

C. is breaking even.

D. should shut down.

E. is having an economic loss but should continue as P>AVC.

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Answer #1

Answer

Option E

E. is having an economic loss but should continue as P>AVC.

A firm in the market produce at the MR=MC=P if P>AVC to minimize losses where Q=7 units.

as P=$5 then the AVC is below price so the firm should continue to produce to keep the loss below fixed costs.

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