MR $.70 $.70 $.70 $.70 $.70 $.70 $.70 $.70 $.70 $.70 $.70 Output MC ATC AVC 0 $1

Question

MR $.70 $.70 $.70 $.70 $.70 $.70 $.70 $.70 $.70 $.70 $.70 Output MC ATC AVC 0 $1.00 $.80 $.70 $.50 $.50 $.70 $.80 $.86 $1.00 $1.50 $2.00 $1.40 $1.16 $1.00 $.90 $.86 $.85 $.86 $.87 $.94 $1.00 $.90 $.83 $.75 $.70 $.70 $.71 $.73 $.76 $.84 2 3 4 6 7 10 According to the table above, at a price of $.70 this firm will produce A. 6 units because that minimizes losses. B. 8 units because that maximizes profit. C. 6 units because that maximizes profit. D. 8 units because that minimizes losses E. This firm will not produce.

Explanation / Answer

Answer is A. 6 units because that minimizes losses.

Explanation:

The firm shall produce at such point where MC =MR hence the equilibrium output is 6 units. At this point, ATC is $0.86 above AR $0.70. Thus the firm will be able to minimize losses at this point.

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