Question

QUESTION 17 Figure 14-4 Suppose a firm operating in a competitive market has the following cost curves: Price Q102 03 04 Refer to Figure 14-4. When price rises from P2 to P3, the firm finds that a marginal cost exceeds marginal revenue at a production level of Q2. b.expanding output to Q4 would leave the firm with losses c. it could increase profits by lowering output from Q3 to 02. d. if it produces at output level Q3 it will earn a positive profit

Answer 1

Option B is correct

At the production level of Q2, the price level is now P3 which is also the marginal revenue. the marginal cost is obviously less than the marginal revenue at this level. also know that there are no economic profits at Q3 because price is equal to average total cost. When the output is reduced from Q3 to Q2, average total cost becomes greater than price P3 which means there are economic losses. However reproduction is increased to Q4, average total cost will be greater than the price which means there will be losses.