Question

If a firm sets its quantity of output such that its marginal revenue equals its marginal cost, and then sees that its price exceeds its average total cost, this implies that the firm

a.is earning a loss but should stay open.

b.is profitable.

c.is breaking even (earning zero profit).

d.is earning a loss and should shut down.

Answer 1

When the marginal revenue of a firm is equal to its marginal cost, it means that the firm is producing at its optimal level where it can maximize its profits. If the price of the firm's output is higher than its average total cost, it means that the firm is earning a positive profit, so the answer is B.