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Question

Why do producers supply fewer goods when prices are low?


  1. When prices are low, costs of production are high.

  2. Fewer goods can be produced when prices are low.

  3. Quantity demanded is less when prices are low.

  4. When prices are low, the profit maximization point corresponds to a lower quantity supplied.


Solution

The correct option is D

When prices are low, the profit maximization point corresponds to a lower quantity supplied.


When prices are low, the profit maximization occurs at a lower level of quantity produced because the MC curve cuts the MR curve of price line at a lower level of quantity.

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