In the short-run,if the price falls,the firm will respond by:
A)liquidating its assets and shutting down.
B)producing at the output level where average variable cost is equal to marginal revenue.
C)reducing output along its marginal cost curve as long as marginal revenue exceeds average variable cost.
D)increasing its output in order to sell higher quantities.

Question

Quizplus · Accepted Answer

When the price falls, the firm's revenue decreases and it may become unprofitable to produce in the short run. To minimize losses, the firm will reduce its output to the point where marginal revenue equals marginal cost. If the price is below the average variable cost, the firm will shut down temporarily and if it's below the average total cost, the firm will shut down permanently. Liquidating assets is an extreme measure that is unlikely to be taken in response to a price change. Similarly, increasing output when the price falls is not a rational response as it would only lead to more losses.

In the Short-Run,if the Price Falls,the Firm Will Respond By