Consider a perfectly competitive firm in the short run. Assume that it is sustaining economic losses...

Consider a perfectly competitive firm in the short run. Assume that it is sustaining economic losses but continues to produce. At the profit-maximizing (loss-minimizing) output, all of these statements are true EXCEPT:

A. Marginal cost is less than average total cost

B. Marginal cost is less than average variable cost

C. Price is equal to marginal cost

D. Marginal cost is equal to marginal revenue

Expert Solution

Option (B).

For a perfectly competitive firm, price equals MR, and profit is maximized (or loss is minimized) when Price = MR = MC. A firm will incur loss if Price (MC) < ATC, but will continue to operate in short run if Price (MC) > AVC.

Rahul Sunny answered 2 years ago

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