Suppose a Company Increases Production from a Point Where Marginal

question 125

Multiple Choice

Suppose a company increases production from a point where marginal cost equals average total cost to a point where marginal revenue and marginal cost are equal. Is it a good idea for the company to do this? Why?

• A) No, average total costs have increased which means the company is not minimizing losses.
• B) Yes, because average variable costs are always less than average total costs.
• C) No, the previous level of output was the most efficient because it had the lowest average total cost.
• D) Yes, even though the previous level of output had minimized the average total cost, there was still profit to be earned by producing additional units.

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