The firm is in a decreasing cost industry,and its prices are based upon strict marginal costs.The firm experiences a loss.In this case,for the firm to recover its fixed costs,it must use marginal cost as a floor for its prices,and:
A) try to take business away from competing modes and carriers.
B) convince its customers to pay more for the services offered.
C) use the value of service to determine how high above marginal cost the price should be set.
D) ask the government to intervene so they can raise the minimum cost level.

Question

Quizplus · Accepted Answer

In a decreasing cost industry, the marginal cost of producing each unit decreases as the output level increases. Therefore, using marginal cost as a floor for prices would mean that prices would decrease as the output level increases, which would lead to an increase in demand. To recover fixed costs, the firm must set prices high enough to cover both its marginal costs and fixed costs. This can be done by using the value of the service provided to determine how much higher than the marginal cost the price should be set. This would help the firm maintain its competitiveness while also ensuring that it recovers its fixed costs. Option A is not feasible in a decreasing cost industry, as it would lead to a price war and may not necessarily help the firm recover its fixed costs. Option B may not be possible, as the firm's prices are already based on strict marginal costs. Option D is not a viable option, as it involves government intervention and may not be appropriate in a free market economy.

The Firm Is in a Decreasing Cost Industry,and Its Prices