Question

A company produces at an output level where marginal revenue is equal to marginal cost and has the following revenue and cost levels: Marginal cost curve intersects the average variable cost curve at $150. Marginal cost curve intersects the average total cost curve at $200. Marginal cost curve intersects the marginal revenue curve at $170. What would you suggest this firm should do in the short run

Answer 1

Answer:

The firm should continue to produce at a loss.

Explanation:

As long as intersection of Marginal cost curve and marginal revenue curve is above the $150, it is advisable for firm to continue its operations since in case of shut down it would be bearing a loss of whole fixed cost