Figure 9.17
-Refer to Figure 9.17.In the long run,why will the firm produce Q_f units and not Q_gunits,which has a lower average cost of production?

Question

Figure 9.17 -Refer to Figure 9.17.In the long run,why will the firm produce Q_f units and not Q_gunits,which has a lower average cost of production?

Quizplus · Accepted Answer

The firm needs to produce at the output level where marginal revenue equals marginal cost to maximize its profit in the long run. Although producing Q_g units has a lower average cost, it will result in a loss because the firm will have to charge a price below average cost to be able to sell its output. Therefore, the firm will choose to produce Q_f units, which will allow it to charge a price above average cost and make a profit in the long run.

Figure 9.17 -Refer to Figure 9.17.In the Long Run,why Will the Firm