Adhika is deciding whether to open a company to produce step stools. He should start the company if he expects that:
A)the number of step stool manufacturers will soon decrease.
B)the average cost curve will shift downward.
C)his price will exceed his average cost.
D)his marginal revenue will be below his average cost.

Question

Quizplus · Accepted Answer

Adhika should start the company if he expects his price will exceed his average cost. This means that he will be able to sell his step stools at a higher price than it costs him to produce them, resulting in a profit. Option A is irrelevant as the number of step stool manufacturers decreasing does not necessarily guarantee Adhika's success. Option B is not necessarily true and depends on various factors such as production efficiency and input costs. Option D is incorrect as Adhika's marginal revenue being below his average cost indicates a loss and thus starting the company would not be profitable.

Adhika Is Deciding Whether to Open a Company to Produce