Answer to Question #52929 in Microeconomics for Yana

Question #52929
Multiple choice 1. If a business firm is not operating at the point where MR = MC, then: a. it should shut down. b. it cannot be earning a profit. c. its profit is zero. d. it is not earning the maximum potential profit. 2. If, at the point where MR = MC, the firm incurs losses, in the short run the firm should: a. shut down. b. decrease output. c. continue at its current output if P > AVC. d. continue at its current output if P > ATC.
1
Expert's answer
2015-06-28T00:00:42-0400
1. If a business firm is not operating at the point where MR = MC, then:
d. it is not earning the maximum potential profit.
Because MC = MR is profit-maximizing condition.
2. If, at the point where MR = MC, the firm incurs losses, in the short run the firm should:
c. continue at its current output if P ¬> AVC.
In such way it will cover its variable costs.

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