The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2

-Suppose at a certain quantity of output, a firm's average-total-cost curve lies above its demand curve. At this quantity of output, the firm:
A)is earning negative economic profit.
B)is earning zero economic profit.
C)is maximizing profit.
D)should increase its output to maximize profit.
E)should reduce output to maximize negative economic profit.

Question

The table given below reports the marginal revenue and marginal cost of Holmes Detective Agency for each client.Table 9.2
 
-Suppose at a certain quantity of output, a firm's average-total-cost curve lies above its demand curve. At this quantity of output, the firm:
A)is earning negative economic profit. 
B)is earning zero economic profit. 
C)is maximizing profit. 
D)should increase its output to maximize profit. 
E)should reduce output to maximize negative economic profit.

Quizplus · Accepted Answer

If the average-total-cost curve lies above the demand curve at a certain quantity of output, it means that the firm's cost of production for that quantity is higher than the revenue it can generate from selling that quantity. Therefore, the firm is earning negative economic profit, which means it is better off reducing its output to minimize its losses. Hence, option A is the correct answer.

The Table Given Below Reports the Marginal Revenue and Marginal