A company produces at an output level where marginal cost is equal to marginal revenue and...

A company produces at an output level where marginal cost is equal to marginal revenue and has the following revenue and cost levels:
Total revenue = $1,450
Total cost = $1,500
Total variable cost = $1,300
What would you suggest?

shut down

continue to produce because the loss is less than the total fixed cost

increase production to lower the marginal cost

reduce output to lower the marginal cost

raise the price

Expert Solution

Correct Answer:

B

Working note:

Fixed cost = total cost - total variable cost = 1500-1300 = $200

Total loss = revenue - total cost = 1450-1500 = -$50

Since the loss is $50 that is less than the fixed cost of $200, so firm should continue the operation.

Rahul Sunny answered 2 years ago

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