If it is possible for a perfectly competitive firm to do better financially by producing rather than
If it is possible for a perfectly competitive firm to do better financially by producing rather than shutting down, then it should produce the amount of output at which: LO10.5 a. MR MC. b. MR = MC. d. none of the above
Here is the full solution including the answer and explanation.
b is correct
If the firm intends to maximize its profits or minimize its losses, the marginal cost should be equal to the marginal cost. At shut down, the firm incurs losses and cannot produce. Therefore, if it wants to produce, it must produce output at a level where MC = MR.
a is incorrect
If marginal revenue is less than marginal cost, the additional revenue received from the sale of the good is more than the additional cost of producing the good. Therefore, the firm needs to produce less output for MR to be equal to MC.
c is incorrect
If revenue earned from selling additional units of goods is more than marginal cost then the firm needs to produce more output to maximize its profit or reduce its losses. Hence, if more units of goods are produced then marginal revenue would be equal to marginal cost.
d is incorrect
Profit can be maximized if the output is produced at a point where marginal cost is equal to marginal revenue.
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