This graph represents the cost and revenue curves of a firm in a perfectly competitive market. According to the graph shown,if a firm is producing at Q1:

Question

This graph represents the cost and revenue curves of a firm in a perfectly competitive market.  According to the graph shown,if a firm is producing at Q1:

Quizplus · Accepted Answer

If the firm is producing at Q1, the market price is P1. At this level of output, the average total cost (ATC) is higher than the market price. This means that the firm is not earning any profit and is making a loss. Therefore, the firm should not increase production because it will incur more losses. The profits are maximized at the output level where the marginal revenue equals the marginal cost, which is at Q2 in this graph.

This Graph Represents the Cost and Revenue Curves of a Firm