If Your Firm Is Producing a Good at a Level

question 75

Multiple Choice

If your firm is producing a good at a level where marginal revenue equals marginal cost, and price is less than average variable cost, then in the short run your firm should

• A) shut down and suffer a loss equal to your fixed costs.
• B) continue to produce, but increase output.
• C) continue to produce the same amount.
• D) continue to produce, but decrease output.

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Definitions:

Elasticity

A measure in economics that shows how the quantity demanded or supplied of a good changes in response to price or other economic factors.

Marginal Utility

The additional satisfaction or benefit (utility) that a consumer gains from consuming one more unit of a good or service.

Consumer Behavior

Consumer behavior examines the decision-making processes and actions of individuals or groups in purchasing and using goods and services.

Maximizes Satisfaction

Refers to the act of choosing options that result in the highest level of satisfaction or utility for an individual or group, based on preferences.