Suppose an entrepreneur commits to a production schedule but underestimates the market price for his products. What will be true about his current level of production?
A) Losses will be very high.
B) Marginal cost will be less than marginal revenue.
C) Marginal cost will be more than marginal revenue.
D) Average total cost will exceed price.
E) Total fixed costs will be too low.

Question

Quizplus · Accepted Answer

When the market price is underestimated, the actual price at which the entrepreneur can sell the product is higher than expected. This means for each additional unit produced, the revenue (marginal revenue) generated from selling that unit is higher than the cost (marginal cost) of producing it, making production more profitable than anticipated.

Suppose an Entrepreneur Commits to a Production Schedule but Underestimates