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

Question

Quizplus · Accepted Answer

The firm should continue to operate as long as the average variable cost is less than $5 because it can cover its variable costs and contribute to fixed costs, even though it is not covering total costs.

A Firm Is Currently Maximizing Profits by Producing at an Output