Consider the total cost and revenue curves shown below, for two perfectly competitive firms, Firm A and Firm B. FIGURE 9- 5
-Refer to Figure 9- 5. Given its total cost and revenue curves, Firm B should

Question

Consider the total cost and revenue curves shown below, for two perfectly competitive firms, Firm A and Firm B.  FIGURE 9- 5
-Refer to Figure 9- 5. Given its total cost and revenue curves, Firm B should

Quizplus · Accepted Answer

Firm B should produce the level of output where the slope of the TC curve is equal to the slope of the TR curve. This is the level of output where marginal cost equals marginal revenue, which maximizes profits. At any lower level of output, the firm would not be covering its variable costs and would be better off shutting down temporarily (A). At any higher level of output, the firm would have increasing marginal costs exceeding marginal revenue, which would result in losses (C). Exiting the industry (E) is not a viable option based on the information provided.

Consider the Total Cost and Revenue Curves Shown Below, for Two