Exhibit 10-8 Assume the firm in Exhibit 10-8 is currently charging price P and producing output level Q.In order to maximize profit (or minimize loss), the firm should
A)charge more and sell less
B)charge less and sell more
C)charge less and sell less
D)charge more and sell more
E)continue to charge P and sell Q

Question

Exhibit 10-8  Assume the firm in Exhibit 10-8 is currently charging price P and producing output level Q.In order to maximize profit (or minimize loss), the firm should
A)charge more and sell less 
B)charge less and sell more 
C)charge less and sell less 
D)charge more and sell more 
E)continue to charge P and sell Q

Quizplus · Accepted Answer

The firm in Exhibit 10-8 is currently producing at a level where marginal cost (MC) equals marginal revenue (MR), which is indicated by point A. However, at this output level, the firm's price is higher than the market equilibrium price (P*), which means that there is excess supply in the market. In order to increase its sales and reduce its excess supply, the firm should lower its price (i.e. charge less) and increase its output level. This would move the firm to a new point on the demand curve where MC=MR and P=P*. Therefore, the best choice for the firm to maximize profit (or minimize losses) is to charge less and sell more, as indicated by point B in the exhibit.

Exhibit 10-8 Assume the Firm in Exhibit 10-8 Is