2. Suppose a chemical firm is producing 100 units of output with MC = $8, AVC...

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2. Suppose a chemical firm is producing 100 units of output with MC = $8, AVC = $7, and ATC = $9. The prevailing price of the product in the market is $8.50. There are many substitutes for this firm's product, so that this firm's sales would fall dramatically if it tried to raise the price. In order to maximize short-run profits (or minimize short-run losses if that is the best the firm can do) the firm should: a. increase the selling price to some point above $9. b. increase its output until MC equals $8.50. c. shut down production in the short-run since it is losing money. d. reduce its output so as to lower MC, AVC, and ATC and earn an economic profit. 2. Suppose a chemical firm is producing 100 units of output with MC = $8, AVC = $7, and ATC = $9. The prevailing price of the product in the market is $8.50. There are many substitutes for this firm's product, so that this firm's sales would fall dramatically if it tried to raise the price. In order to maximize short-run profits (or minimize short-run losses if that is the best the firm can do) the firm should: a. increase the selling price to some point above $9. b. increase its output until MC equals $8.50. c. shut down production in the short-run since it is losing money. d. reduce its output so as to lower MC, AVC, and ATC and earn an economic profit.

Answer rating: 100% (QA)

Answer The correct answer is c shut down production in the shortrun since it is losing money Heres t... View the full answer