Answer to Question #52933 in Microeconomics for Yana

Question

2. Suppose a company increases production from a point where marginal cost equals average total cost to a point where marginal revenue and marginal cost are equal. Is it a good idea for the company to do this? Why?
a. No, average total costs have increased which means the company is not minimizing losses.
b. Yes, because average variable costs are always less than average total costs.
c. No, because the marginal cost of producing the last unit is the same as the marginal
revenue.
d. Yes, even though the previous level of output had minimized the average total cost, there
was still profit to be earned by producing additional units.
e. No, the previous level of output was the most efficient because it had the lowest average
total cost.

Answer 1

2. Suppose a company increases production from a point where marginal cost equals average total cost to a point where marginal revenue and marginal cost are equal. Is it a good idea for the company to do this? Why?
d. Yes, even though the previous level of output had minimized the average total cost, there was still profit to be earned by producing additional units.