Suppose you are producing where MC = AVC = $3 and this is loss minimizing. If market reports predict that the price of your product will reach a long-run equilibrium level that is $4 higher than it is today, you should
A) increase output in advance of the expected price increase
B) remain in business
C) shut down
D) remain in business only if your most efficient production level has an average total cost less than or equal to $7
E) shut down until the price increases, then get back in business

Question

Quizplus · Accepted Answer

If the market price is expected to increase by $4, and the loss-minimizing output level has MC = AVC = $3, then the firm should remain in business only if its most efficient production level has an average total cost less than or equal to $7.

Suppose You Are Producing Where MC = AVC = $3