If a firm produces where marginal revenue is equal to marginal cost and price is less than average variable cost then the firm is maximizing profits.

Question

Quizplus · Accepted Answer

If price is less than average variable cost, the firm is not covering all its variable costs and is incurring losses even if it is producing at the point where marginal revenue is equal to marginal cost. In this case, the firm should shut down in the short-run to minimize its losses.

If a Firm Produces Where Marginal Revenue Is Equal to Marginal