Suppose that Carla's Candy Shop finds that at the current level of output,marginal revenue is below marginal cost and average variable cost is below price.If the market price is held constant,Carla's Candy Shop should __________ in order to maximize profits.
A)raise output
B)reduce its price
C)reduce output
D)close down
E)maintain its current output level

Question

Quizplus · Accepted Answer

When marginal revenue is below marginal cost, the firm should reduce output to maximize profits, as producing more would increase costs more than revenue. Since average variable cost is below price, the firm is covering its variable costs and should not shut down.

Suppose That Carla's Candy Shop Finds That at the Current