Final answer:
A firm with a declining market share can still earn a higher operating income if the market as a whole is growing, leading to falling average total costs in a decreasing cost industry. Technological advancements or better employee education can contribute to this scenario.
Step-by-step explanation:
The student's question pertains to the scenario where a firm's market share percentage is declining, yet it may still experience an increase in operating income. The most relevant option, considering the provided context, is that this could happen if the market as a whole is growing. Even if a firm's market share is decreasing, the total market size could be expanding at a rate that increases the firm's absolute sales and potential operating income. This situation can occur in a decreasing cost industry, where both old and new firms benefit from lower production costs as the market expands. Such savings could stem from technological improvements or enhanced employee education, leading to falling average total costs for firms.It is crucial to note that when a firm's price is below its average cost, it may operate at a loss. In such instances, the best option is usually the one that minimizes losses. This might mean continuing production if the price covers the average variable cost and the loss is less than the fixed costs would be if the firm shut down.