If a firm decides to make the investment decision to expand its capacity,then it must have discovered that
A)P = ATC.
B)P AVC.
C)P ATC.
D)P = AVC.

Question

If a firm decides to make the investment decision to expand its capacity,then it must have discovered that
A)P = ATC.
B)P > AVC.
C)P > ATC.
D)P = AVC.

Quizplus · Accepted Answer

If a firm decides to make an investment decision to expand its capacity, it means that it expects to increase its production levels. In order for the firm to cover the costs of the expansion, it must be able to sell its output at a price that is higher than its average total cost (ATC). If the firm could only sell its output at a price that is equal to or lower than its ATC, it would not be able to generate enough revenue to cover its costs and make a profit. Therefore, the condition for profitable expansion is that P > ATC.

If a Firm Decides to Make the Investment Decision to Expand