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 $140.
Marginal cost curve intersects the average total cost curve at $150.
Marginal cost curve intersects the marginal revenue curve at $200.
What would you suggest this firm should do in the short run?
A) The firm should shut down.
B) The firm should continue to produce at a loss.
C) The firm should continue to produce at a profit level of $10 per unit.
D) The firm should continue to produce at a profit level of $50 per unit.
E) The firm should continue to produce at a profit level of $60 per unit.

Question

Quizplus · Accepted Answer

In the short run, a firm should continue to produce as long as the price (or marginal revenue, MR) is above the average variable cost (AVC). Here, MR ($200) is above both AVC and ATC (with ATC at $150 at the point of intersection with MC), indicating the firm is covering all its costs and making a profit. The profit per unit can be calculated as the difference between the price (MR) and the ATC at the point of production, which is $200 - $150 = $50.

A Company Produces at an Output Level Where Marginal Revenue