The figure below shows the cost curves of a firm in a competitive market. The firm always makes the choice to maximize its profit.

-Refer to the figure above.If the price is more than $1.50 but at most $2.00,the firm should produce ________.

Question

The figure below shows the cost curves of a firm in a competitive market. The firm always makes the choice to maximize its profit.
 
-Refer to the figure above.If the price is more than $1.50 but at most $2.00,the firm should produce ________.

Quizplus · Accepted Answer

In this scenario, the firm should produce the quantity where the marginal cost equals the price, even if it results in a loss. This is because, by producing where MC = price, the firm minimizes its losses by covering some of its variable costs, even though it cannot cover the total fixed costs and thus incurs a loss. Producing at this level is preferable to not producing at all, as it allows the firm to cover some of its variable costs and potentially some fixed costs, reducing the overall loss compared to not producing.

The Figure Below Shows the Cost Curves of a Firm