Question

A firm is facing a downward sloping price line ($AR$ curve). Why should it produce more when it must lead to fall in price of the commodity?

Answer 1

A firm produces more of a commodity even when price is reducing only in a situation when it finds that the difference between $TR$ and $TC$ is increasing, so that its total profit $(TR-TC)$ is rising. It will stop production when profit is maximum or when the difference between $TR$ and $TC$ is maximum.

Also, as stated in the Law of Demand, Demand rises when Price of a commodity falls. Thus, to meet Demand for the goods, the production will be increased. This will hence result in more profits for a firm.