In the figure to the right, Sacha Gillette reduces her output from 7000 to 5000
ID: 1114085 • Letter: I
Question
In the figure to the right, Sacha Gillette reduces her output from 7000 to 5000 boxes of carrots when the price falls to $8.75. At this price and this output level, she is operating at a loss.
What option does Gillette have in this situation?
A. Raise her price back up to $10.75.
B. Increase the quantity produced.
C. Try to cut her costs of production to decrease the loss in the short run.
D. Continue producing 7000 boxes of carrots.
MC 883 ATC CO D z MR D 0.75 CO 8.75 50007000 0 Quantity (boxes of carrots)Explanation / Answer
Answer
Option C
The firm increase profit by producing at P=MC
the output at this level is 5000 unit if the price is $8.75 and this is in the loss but the firm should product because it will increase losses if shut down and producing 700 units, and the price cannot be increased at 10.75 because the firm is the price taker.
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