If a firm finds itself at an output level where MR

Question

If a firm finds itself at an output level where MR < MC, then the firm
A)should shut down, since it is losing money.
B)should decrease output.
C)should increase output.
D)should raise the price of its product.

Quizplus · Accepted Answer

At an output level where MR < MC, the firm is not maximizing its profits, but is still covering its variable costs. Therefore, reducing output will allow the firm to minimize its losses while still generating some revenue to cover its fixed costs. Shutting down is not the best option since the firm is still covering its variable costs, increasing output will only increase losses, and raising the price of its product is not a viable option if the market is already competitive.

If a Firm Finds Itself at an Output Level Where