Suppose a firm notices that the price it faces has doubled, but it does not change its level of output. It must be the case that
A) profits have doubled
B) the marginal cost curve is falling
C) total revenue has decreased
D) the original price was less than half of the minimum of the AVC curve
E) this situation would not really occur

Question

Quizplus · Accepted Answer

The firm continues producing the same output level despite a doubling in price because producing at that level still covers its variable costs. If the original price was less than half of the minimum of the Average Variable Cost (AVC) curve, doubling the price would just bring it closer to covering these costs, making continued production rational.

Suppose a Firm Notices That the Price It Faces Has