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A firm is producing at a level in which MR=MC & it's AFC=8, AVC= 15 and Price= 23. The firm should a) continue production in long run b) continue production in short run c) shutdown it's production d) None of these The correct answer is option B. Can you explain this and why not option A?
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A firm is producing at a level in which MR=MC & it's AFC=8, AVC= 15 an...
Explanation:
First, let's understand the concept of MR=MC. When a firm produces at a level where Marginal Revenue (MR) equals Marginal Cost (MC), it maximizes its profit. This is because MR represents the additional revenue earned from selling one more unit, while MC represents the additional cost of producing one more unit. So, producing at this level ensures that the firm is not wasting resources on units that do not bring in enough revenue to cover their costs.
Short Run vs Long Run:
In the short run, a firm should continue production if the price is greater than the average variable cost (AVC). This is because the firm is able to cover its variable costs and some portion of its fixed costs, contributing towards covering the total costs. However, in the long run, a firm should continue production if the price is greater than the average total cost (ATC). This ensures that the firm is covering all of its costs, both variable and fixed, and making a profit.
Analysis:
Given that the firm's AFC is 8, AVC is 15, and Price is 23, we can see that the price is greater than the AVC. This means that the firm should continue production in the short run to cover its variable costs and contribute towards covering its fixed costs. However, since we do not have information about the firm's ATC, we cannot determine if it should continue production in the long run.
Conclusion:
Based on the given information, the firm should continue production in the short run. To determine if it should continue production in the long run, we would need to compare the price to the firm's ATC.
First, let's understand the concept of MR=MC. When a firm produces at a level where Marginal Revenue (MR) equals Marginal Cost (MC), it maximizes its profit. This is because MR represents the additional revenue earned from selling one more unit, while MC represents the additional cost of producing one more unit. So, producing at this level ensures that the firm is not wasting resources on units that do not bring in enough revenue to cover their costs.
Short Run vs Long Run:
In the short run, a firm should continue production if the price is greater than the average variable cost (AVC). This is because the firm is able to cover its variable costs and some portion of its fixed costs, contributing towards covering the total costs. However, in the long run, a firm should continue production if the price is greater than the average total cost (ATC). This ensures that the firm is covering all of its costs, both variable and fixed, and making a profit.
Analysis:
Given that the firm's AFC is 8, AVC is 15, and Price is 23, we can see that the price is greater than the AVC. This means that the firm should continue production in the short run to cover its variable costs and contribute towards covering its fixed costs. However, since we do not have information about the firm's ATC, we cannot determine if it should continue production in the long run.
Conclusion:
Based on the given information, the firm should continue production in the short run. To determine if it should continue production in the long run, we would need to compare the price to the firm's ATC.
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A firm is producing at a level in which MR=MC & it's AFC=8, AVC= 15 and Price= 23. The firm should a) continue production in long run b) continue production in short run c) shutdown it's production d) None of these The correct answer is option B. Can you explain this and why not option A?
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A firm is producing at a level in which MR=MC & it's AFC=8, AVC= 15 and Price= 23. The firm should a) continue production in long run b) continue production in short run c) shutdown it's production d) None of these The correct answer is option B. Can you explain this and why not option A? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about A firm is producing at a level in which MR=MC & it's AFC=8, AVC= 15 and Price= 23. The firm should a) continue production in long run b) continue production in short run c) shutdown it's production d) None of these The correct answer is option B. Can you explain this and why not option A? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A firm is producing at a level in which MR=MC & it's AFC=8, AVC= 15 and Price= 23. The firm should a) continue production in long run b) continue production in short run c) shutdown it's production d) None of these The correct answer is option B. Can you explain this and why not option A?.
A firm is producing at a level in which MR=MC & it's AFC=8, AVC= 15 and Price= 23. The firm should a) continue production in long run b) continue production in short run c) shutdown it's production d) None of these The correct answer is option B. Can you explain this and why not option A? for CA Foundation 2024 is part of CA Foundation preparation. The Question and answers have been prepared according to the CA Foundation exam syllabus. Information about A firm is producing at a level in which MR=MC & it's AFC=8, AVC= 15 and Price= 23. The firm should a) continue production in long run b) continue production in short run c) shutdown it's production d) None of these The correct answer is option B. Can you explain this and why not option A? covers all topics & solutions for CA Foundation 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A firm is producing at a level in which MR=MC & it's AFC=8, AVC= 15 and Price= 23. The firm should a) continue production in long run b) continue production in short run c) shutdown it's production d) None of these The correct answer is option B. Can you explain this and why not option A?.
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