If the price that determined where marginal revenue equaled marginal cost were below the bottom of the average variable cost curve, then the profit - maximizing, monopolistically competitive firm would produce an output amount where marginal cost equals marginal revenue and make a small profit. produce an output amount that corresponded to the place where average total cost equals average variable cost and incur a small loss. shut down because it would cost more to produce and sell output than it would to shut down and lose all fixed costs. produce an output amount that corresponded to the place where marginal cost equals marginal revenue and break even. produce an output amount that corresponded to the place where marginal cost equals marginal revenue, but make a small loss.

Question

Frau Frau

Business

7 September, 21:12

If the price that determined where marginal revenue equaled marginal cost were below the bottom of the average variable cost curve, then the profit - maximizing, monopolistically competitive firm would produce an output amount where marginal cost equals marginal revenue and make a small profit. produce an output amount that corresponded to the place where average total cost equals average variable cost and incur a small loss. shut down because it would cost more to produce and sell output than it would to shut down and lose all fixed costs. produce an output amount that corresponded to the place where marginal cost equals marginal revenue and break even. produce an output amount that corresponded to the place where marginal cost equals marginal revenue, but make a small loss.

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Answers (1)

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Cullen Mcbride · Answer 1

c) c) shut down because it would cost more to produce and sell output than it would to shut down and lose all fixed costs.

Explanation:

The question seems not to have a correct format, googling a little bit you can find that it is composed by several options that in this case were not specified. Then, the question would look like this:

If the price that determined where marginal revenue equaled marginal cost were below the bottom of the average variable cost curve, then the profit - maximizing, monopolistically competitive firm would:

a) produce an output amount where marginal cost equals marginal revenue and make a small profit.

b) produce an output amount that corresponded to the place where average total cost equals average variable cost and incur a small loss.

c) shut down because it would cost more to produce and sell output than it would to shut down and lose all fixed costs.

d) produce an output amount that corresponded to the place where marginal cost equals marginal revenue and break even.

e) produce an output amount that corresponded to the place where marginal cost equals marginal revenue, but make a small loss.

And the correct answer is c). It is necessary for the company to close production in order to recover losses from fixed costs, because the price is lower than average variable cost.

In other words, the company loses less by closing (fixed costs), than by operating (fixed costs + variable costs).