The figure below shows a graph of a cost function C(x) and a linear revenue func

Question

The figure below shows a graph of a cost function C(x) and a linear revenue function R(x). Choose the correct statement below. At x = A, the marginal cost is negative, and the marginal revenue is positive: increasing total production with increasing the total profit. At x = A, marginal revenue appears to equal marginal cost. Since revenue is higher than costs, profit is at a local maximum. At x = A, the cost function has a point of inflection. This is the point of diminishing returns marginal costs begin to increase. At x = A, marginal revenue appears to equal marginal cost. Since cost is higher than revenue, there is a loss and profit is at a local minimum. At x = A, revenue is equal to cost; this is a break even point.

Explanation / Answer

At x = A Marginal revenue appears to be equal to marginal cost.Since cost is higher than revenue there is a loss and profit is at a local minimum.

At point A, slope of R(x) and C(x) is equal i.e. MR = MC.However as cost curve lies above revenue curve firm incurs a loss.

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