Question

A perfectly competitive firm's marginal cost curve is upward sloping but not vertical. If the price of the product increases, in the short run it is for the firm's economic profit to decrease (or for its economic loss to increase) Which of the following statements explain the above argument? (Check all that apply.) A. It is not possible if the firm produces at any point on the marginal cost curve. B. It is possible if the firm produces at the marginal cost curve but below average total cost. C. It is possible if the firm produces the profit-maximizing quantity but is incurring a loss initially D. It is not possible as the firm will always produce the profit-maximizing quantity
in the drop down menu is possible or not possible

Answer 1

Answer:

Not possible

Which of the following explains the above argument.?

D. It is not possible as the firm will always produce the profit maximization quantity.

Explanation:

Firm produce where MR=MC. And in competitive market MR=PRICE. So when price is increases the equilibrium point is also increases that cause the quantity demanded also increase. But the total cost is increasing but at lower level. That is AVC increases but average fixed cost is decreases. That cause total cost to increase but as decreasing rate.