Question

Why do producers supply fewer goods when prices are low?

• A. When prices are low, costs of production are high.
• B. Fewer goods can be produced when prices are low.
• C. Quantity demanded is less when prices are low.
• D. When prices are low, the profit maximization point corresponds to a lower quantity supplied.

Answer 1

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.