Figure 14-2

-Refer to Figure 14-2.When price rises from P₃ to P4,which of the following does the firm find

Question

Figure 14-2
 
-Refer to Figure 14-2.When price rises from P₃ to P4,which of the following does the firm find

Quizplus · Accepted Answer

When price rises from P₃ to P₄, the firm can increase its production level to Q₄ and still earn a positive profit. This is because the new price is above the average variable cost curve, allowing the firm to cover its variable costs and earn a contribution to fixed costs and profits. Therefore, option C is the correct answer. Option A is incorrect because profit maximization occurs at the point where marginal cost equals marginal revenue, which may not necessarily be at Q₃. Option B is incorrect because fixed costs do not change with changes in production levels. Option D is incorrect because marginal revenue always equals average revenue in a perfectly competitive market.

Figure 14-2 -Refer to Figure 14-2.When Price Rises from P₃ to P4,which