Question

If a competitive firm can sell a bushel of soybeans for $25 and it has an average variable cost of $24 per bushel and the marginal cost is $26 per bushel, the firm should: reduce output. expand output. increase price. cut output to zero.

Answer 1

reduce output

Step-by-step explanation:

The marginal cost ($26) is greater than the marginal revenue ($25). In order to maximise profit, marginal cost should he reduced up to the point where marginal cost equals marginal benefit.

A firm should shutdown, reduce production to zero if average variable cost is greater than price but in this question, the firm shouldn't shut down since price ($25) is greater than average variable cost ($24).

I hope my answer helps you