FIGURE 8-9

-Refer to Figure 8-9. When the market price for lawn care services decreases from P₁ to P₀, what will the firm most likely do?

Question

FIGURE 8-9
 
-Refer to Figure 8-9. When the market price for lawn care services decreases from P₁ to P₀, what will the firm most likely do?

Quizplus · Accepted Answer

When the market price for lawn care services decreases, the firm's marginal revenue decreases as well. In order to continue earning a profit or minimizing losses, the firm will need to decrease its production of services to reduce its costs. Increasing production would lead to even greater losses, while continuing to provide the same quantity of services would not be sustainable if the market price is lower. Leaving the industry may be an option, but it is not necessarily the most likely choice.

FIGURE 8-9 -Refer to Figure 8-9. When the Market Price for Lawn