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In the short run, if a firm produces the level of output at which marginal revenue is equal to...

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In the short run, if a firm produces the level of output at which marginal revenue is equal to marginal cost but price is less than average total cost, the firm will:

a. Always shut down production,

b. Expand output to lower its average fixed cost,

c. Continue to operate if price is greater than its average variable cost,

d. Decrease output until price equals its average total cost,

e. Increase output to increase revenue.

Shut down decision

While the producer can't control the fixed costs he can definitely control the variable expenses. He would never attempt the production of a commodity and shut down quickly when variable expenses are not secured.

Answer and Explanation: 1

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c. Continue to operate if the price is greater than its average variable cost,

A firm maximizes profit or minimizes losses at MR=MC and we know that...

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Profit Maximization: Definition, Equation & Theory

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Chapter 24 / Lesson 6
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Learn the profit maximization definition, its importance, and explore the profit maximization theory. See how to calculate profit maximization with examples.


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