Figure 13-17

-Refer to Figure 13-17.In the long run, why will the firm produce Qf units and not Qg units, which has a lower average cost of production?
A)Although its average cost of production is lower when the firm produces Qg units, to be able to sell its output the firm will have to charge a price below average cost, resulting in a loss.
B)At Qg, average cost exceeds marginal cost so the firm will actually make a loss.
C)At Qg, marginal revenue is less than average revenue which will result in a loss for the firm.
D)The firm's goal is to charge a high price and make a small profit rather than a low price and no profit.

Question

Figure 13-17
 
-Refer to Figure 13-17.In the long run, why will the firm produce Qf units and not Qg units, which has a lower average cost of production?
A)Although its average cost of production is lower when the firm produces Qg units, to be able to sell its output the firm will have to charge a price below average cost, resulting in a loss. 
B)At Qg, average cost exceeds marginal cost so the firm will actually make a loss. 
C)At Qg, marginal revenue is less than average revenue which will result in a loss for the firm. 
D)The firm's goal is to charge a high price and make a small profit rather than a low price and no profit.

Quizplus · Accepted Answer

Even though the average cost of production is lower for producing Qg units, the firm cannot charge a price higher than the market price. Since the market price is determined by the demand for the product, the firm has to sell its output at a price lower than the average cost if it produces Qg units. This will result in a loss for the firm. Therefore, to avoid making a loss, the firm will produce Qf units where it can charge a price higher than the average cost and make a profit.

Figure 13-17 -Refer to Figure 13-17.In the Long Run, Why Will the Run