Suppose that at the current level of output, price = $100, MC = $100, AVC = $80, and ATC = $90. Which of the following is TRUE?

Question

Quizplus · Accepted Answer

At the current level of output, the price of the product is greater than both the average variable cost and the average total cost. This means that the firm is earning a profit, although not a very large one, and should continue to produce at the current level of output. If the firm were to decrease output, it would not be able to cover its fixed costs and would lose more money. If the firm were to shut down, it would still have to pay its fixed costs and would incur a larger loss. If the firm were to increase output, it may not be able to sell all of its output at the current price and would face diminishing returns, which would increase its costs and decrease its profit.

Suppose That at the Current Level of Output, Price =