Refer to the diagram given below.The diagram has two panels: (a) and (b). Panel (a) represents the demand for and the supply of a brand of automobile (Turbo car) for Fancy Auto, a car manufacturing company.Assume that DL represents the demand for Turbo cars when demand is low, DM represents the demand for Turbo cars when demand is medium, and DH represents the demand for Turbo cars when demand is high.If Fancy Auto's optimal output level is 900 cars per week and the price of Turbo cars is flexible, Fancy Auto: A)can continue to sell its optimal output regardless of the demand level. B)can produce at its optimal output level only if the level of demand is D_L. C)can produce at its optimal output level only if the level of demand is at D_M. D)can sell more than its optimal output when the level of demand is D_H.

Question

Quizplus · Accepted Answer

Since the price of Turbo cars is flexible, Fancy Auto can continue to sell its optimal output level of 900 cars per week regardless of the level of demand. The demand curve intersects the marginal cost curve at the optimal output level, indicating that the production of 900 cars per week is the most profitable level of output for Fancy Auto.

Refer to the Diagram Given Below