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

question 28

Multiple Choice

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

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

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Definitions:

Rational Expectations

The theory suggesting that individuals form forecasts about the future based on all available information.

Critics

Individuals or groups that express disagreement or disapproval towards certain ideas, policies, or works, often seeking to present alternative viewpoints.

Great Recession

A significant global economic downturn that occurred from late 2007 through mid-2009, recognized as the most severe since the Great Depression.

Interest Rates

The expense levied by a lender on a borrower, shown as a percentage of the original amount, for asset usage.