A company produces at an output level where marginal revenue is equal to marginal cost and has the following revenue and cost levels:
Marginal cost curve intersects the average variable cost curve at $150.
Marginal cost curve intersects the average total cost curve at $200.
Marginal cost curve intersects the marginal revenue curve at $170.
What would you suggest this firm should do in the short run?
A) The firm should continue to produce at a profit level of $20 per unit.
B) The firm should continue to produce at a profit level of $30 per unit.
C) The firm should continue to produce at a profit level of $50 per unit.
D) The firm should shut down.
E) The firm should continue to produce at a loss.

Question

Quizplus · Accepted Answer

The firm should continue to produce at a loss because the price ($170) is above the average variable cost ($150) but below the average total cost ($200). This means the firm can cover its variable costs and some fixed costs, minimizing losses in the short run.

A Company Produces at an Output Level Where Marginal Revenue