A Company Produces at an Output Level Where Marginal Revenue

question 113

Multiple Choice

A company produces at an output level where marginal revenue is equal to marginal cost and has the following revenue and cost levels:
Marginal cost curve intersects the average variable cost curve at $140.
Marginal cost curve intersects the average total cost curve at $150.
Marginal cost curve intersects the marginal revenue curve at $200.
What would you suggest this firm should do in the short run?

• A) The firm should shut down.
• B) The firm should continue to produce at a loss.
• C) The firm should continue to produce at a profit level of $10 per unit.
• D) The firm should continue to produce at a profit level of $50 per unit.
• E) The firm should continue to produce at a profit level of $60 per unit.

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Definitions:

Total Expense Per Unit

is the computation of all costs involved in producing one unit of a product, including both variable and fixed expenses.

Level Of Activity

This refers to the volume of production or the quantity of services provided by a business over a period of time.

Expected Costs

These are forecasted or estimated costs for a product, project, or operation based on historical data and future projections.

High-Low Method

A technique used in cost accounting to estimate fixed and variable costs associated with production or operations.