If a Profit-Maximizing Firm Finds That Price Exceeds Average Variable

question 61

Multiple Choice

If a profit-maximizing firm finds that price exceeds average variable cost and marginal revenue is greater than marginal cost, what action should it take?

• A) not alter its production level, since it is earning a profit
• B) reduce output, but continue producing in the short run
• C) shut down
• D) increase output

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Definitions:

Liability Insurance

A type of insurance that covers a person from damages; most states set minimum liability requirements.

Deductible

The amount paid out of pocket by the policyholder before an insurance company pays the remaining costs.

Straight Line Depreciation

A line that shows a constant decline in the value of something, such as a car that loses the same value each year.

Odometer

A gauge on the dashboard of a car that indicates the distance the car has traveled since it left the factory.