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, firms can set prices above marginal cost to cover fixed costs. Using the value of service helps determine how much higher the price can be set above marginal cost.

The Firm Is in a Decreasing Cost Industry, and Its