Refer to Figure 13-17. In the long run, why will the firm produce Qf units and not Qg units, which has a lower its average cost of production?
A) At Qg, marginal revenue is less than average revenue which will result in a loss for the firm.
B) Although its average cost of production is lower when the firm produces Qg units, to be able to sell its output the firm will have to charge a price below average cost, resulting in a loss.
C) At Qg, average cost exceeds marginal cost so the firm will actually make a loss.
D) The firm's goal is to charge a high price and make a small profit rather than a low price and no profit.
Question 2
Toot Sweets Bakery sells freshly baked muffins from 6.30 am at 1.20 per muffin. By 4 pm, the remaining muffins are marked down to 0.60 each. Which of the following statements is true?
A) Toot Sweets is trying to minimize its loss.
B) Toot Sweets engages in price discrimination; a higher price for those who cannot wait and a lower price for those willing to wait until 4 pm.
C) Toot Sweets has underestimated the demand for its muffins.
D) Toot Sweets is trying to prevent the opportunity to make arbitrage profit.
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