A firm is currently maximizing profits by producing at an output level at which marginal revenue is $5 and average variable cost is $5.25, the firm should:
A) shut-down at the current output level
B) increase its price to $5.25
C) increase its production until average variable cost is $5
D) decrease its production until marginal cost is $5

Question

Quizplus · Accepted Answer

The firm should shut down because the price (marginal revenue) is less than the average variable cost, meaning the firm is not covering its variable costs and is incurring a loss on each unit produced.

A Firm Is Currently Maximizing Profits by Producing at an Output