(a) Argue whether or not a firm should continue production if its MR is lower than its AVC. (b) Support your argument with expla

Question

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(a) Argue whether or not a firm should continue production if its MR is lower than its AVC. (b) Support your argument with expla

nations.

Business

1 answer:

Delvig [45] · Answer 1 · 2022-01-21T17:55:48+03:00

Answer: A firm should not continue production when its MR is lower than its AVC.

Explanation:

The goal of every firm is to minimize cost and also maximize profits and therefore the firm will operate at the output level where the marginal revenue and the marginal cost equates.

A firm should not continue production when its MR is lower than its AVC. Here, the firm will incur a higher loss during production as producing will not offset the variable cost. Therefore, it's better to shut down.