Exhibit 10.2 shows a firm that charges price P* for output q*.In order to minimize loss in the short run,the firm should _____

Question

Quizplus · Accepted Answer

In the short run, the firm should continue to produce as long as price is greater than or equal to average variable cost. In this case, the firm is charging price P* and producing output q* which is the point where the marginal cost curve intersects with the marginal revenue curve. At this point, the price is greater than the average variable cost, so the firm is covering its variable costs and is better off continuing to produce in the short run, even if it is not making a profit. Therefore, option D is the correct answer.