Question

If a competitive firm can sell a ton of steel for $500 a ton and it has an average variable cost of $400 a ton, and the marginal cost is $600 a ton, the firm should:

Answer 1

If a competitive firm can sell a ton of steel for $500 a ton and it has an average variable cost of $400 a ton, and the marginal cost is $600 a ton, the firm should reduce its output. The reason for the reduction of output is the marginal cost it will have. The marginal cost exceeds the selling price of the product which is a bad sign for the company.