NARRBEGIN 14-2 Graph 14-2

NARRBEGIN 14-2
Graph 14-2

This graph depicts the cost structure for a firm in a competitive market. Use the graph to answer the following question(s) .
-Refer to Graph 14-2. Which of the following statements best reflects the situation faced by the firm when price falls from P₄ to P₂?

A) marginal revenue is lower than marginal cost at the previous level of output, so it decreases production
B) marginal revenue is higher than marginal cost at the previous level of output, so it increases production
C) average total cost is lower than at the previous level of output so it increases production
D) the firm will earn profit equal to (P₄ - P₂) * Q₂

Correct Answer:

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