If substantial economies of scale exist, setting price = MC will
A) result in a loss for the firm
B) result in an excess profit earned
C) yield a normal profit
D) cause the firm to produce more than the optimal number of goods
E) cause the firm to charge lower than the optimal price

Question

Quizplus · Accepted Answer

When substantial economies of scale exist, setting price equal to marginal cost (MC) will result in a loss for the firm because the average total cost (ATC) is higher than the MC at lower levels of output, meaning the firm cannot cover its total costs at this price.

If Substantial Economies of Scale Exist, Setting Price = MC