Assume for a competitive firm that MC = AVC at $12, MC = ATC at $20, and MC = MR at $16. This firm will
A) realize a profit of $4 per unit of output.
B) maximize its profit by producing in the short run.
C) minimize its losses by producing in the short run.
D) shut down in the short run.

Question

Quizplus · Accepted Answer

Since MC = MR at $16, the firm should produce in the short run. However, since the price ($16) is lower than ATC ($20), the firm is experiencing losses. To minimize these losses, the firm should produce where MC = AVC at $12 in the short run. This means the firm will produce as long as the price is greater than or equal to $12, and will minimize its losses by producing at this level. Therefore, the best choice is C, as the firm will minimize its losses by producing in the short run.

Assume for a Competitive Firm That MC = AVC at $12