Suppose Product Price Is $24; MR = MC at Q

question 246

Multiple Choice

Suppose product price is $24; MR = MC at Q = 200; AFC = $6; AVC = $16. What do you advise this competitive price-taker firm to do?

• A) Increase output.
• B) Decrease output.
• C) Shut down operations.
• D) Stay at the current output; the firm is earning a profit of $400.
• E) Stay at the current output even though the firm is losing $200.

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Definitions:

Decision Tree

A graphical representation used in decision analysis to visually and explicitly represent decisions and decision making.

Revised Probability

An updated chance or likelihood of an event occurring after taking into consideration new evidence or information.

Prior Probability

The probability of an event or hypothesis before new evidence or data is taken into account.

Joint Probability

The probability that two or more events happen at the same time. It's calculated by the intersection of the events' probabilities.