15. When price is greater than marginal cost for a firm in a competitive market,

Question

15. When price is greater than marginal cost for a firm in a competitive market, marginal cost nust be falling. the firm must be minimizing its losses. there are opportunities to increase profit by increasing production. the firm should decrease output to maximize profit a. b- c. d- 16. When price is below average variable cost, a firm in a competitive market will a. shut down and incur fixed costs. b· c. d. shut down and incur both variable and fixed costs. continue to operate as long as average revenue exceeds marginal cost. continue to operate as long as average revenue exceeds average fixed cost.

Explanation / Answer

Q15
Answer
Option c
The MC=P is the profit maximizing condition for a perfectly competitive firm, and demand is horizontal so the MC is increasing at this point and which will intersect to demand at the higher level of production.

Q16
Option a
The firm should shut down to minimize losses because of the firm produce then the loss is above fixed cost and if it shutdown then it is equal to fixed cost.

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