The graph below depicts the cost structure for a firm in a competitive market. Figure 9-13 Refer to Figure 9-13. When price rises from P₂ to P₃, the firm finds that A) marginal cost exceeds marginal revenue at a production level of Q₂. B) if it produces at output level Q₃ it will earn a positive profit. C) expanding output to Q₄ would leave the firm with losses. D) it could increase profits by lowering output from Q₃ to Q₂.

Question

Quizplus · Accepted Answer

When price rises from P₂ to P₃, the firm's marginal cost remains constant, while its marginal revenue decreases. Therefore, the firm should not expand output beyond Q₃ as it will result in losses. Hence, option C is the correct answer.

The Graph Below Depicts the Cost Structure for a Firm