At the level of output where marginal revenue equals marginal cost,price is less than average total cost but greater than average variable cost.In this instance,a profit-maximizing firm should:

Question

Quizplus · Accepted Answer

At the output level where marginal revenue equals marginal cost, the firm is earning enough revenue to cover all of its variable costs and contribute towards the fixed costs. This means that the firm is able to minimize its losses in the short term by continuing to operate at this output level. However, it is not making any profits in the long term, so it may need to consider adjusting its production or pricing strategies. Option A is incorrect because the firm is not incurring an economic loss at this output level - it is just not making a profit. Option C is inaccurate because total revenue is only covering variable costs and some of the fixed costs, not all the variable costs. Option D is irrelevant as it does not address the question of maximizing profits at the given output level.

At the Level of Output Where Marginal Revenue Equals Marginal