Under what circumstances product will be sold below marginal cost?

Pricing in Depression: Prices fall during depression and the product may be sold below the total cost. In case there is a serious but temporary fall in the demand on account of depression leading to the need for a drastic reduction in prices temporarily, the minimum selling price should be equal to the marginal cost.

What happens when price is below marginal cost?

When marginal revenue is less than the marginal cost of production, a company is producing too much and should decrease its quantity supplied until marginal revenue equals the marginal cost of production.

Would you advise the management to sell a product even below the marginal cost?

If the selling price is below the marginal cost, loss will be more than the fixed costs because variable expenses will not be recovered fully. Hence, efforts should be made to sell the product at a price which is equal to the marginal cost or more than the marginal cost.

Would a profit-maximizing firm continue to operate if the price in the market fell below its average cost of production provide a novel example and explain?

Answer: A profit-maximizing firm will continue to operate even if price falls below average cost, as long as price is above average variable cost.

What are the situations when goods are sold at below the selling price?

Products are sold below cost for liquidation of Inventory: When there is overstocking of finished goods and the demand is at a low ebb, it is desirable to sell the goods below cost.

How does marginal costing help in profit planning?

Marginal costing is useful in profit planning; it is helpful to determine profitability at different level of production and sale. It is useful in decision making about fixation of selling price, export decision and make or buy decision. Break even analysis and P/V ratio are useful techniques of marginal costing.

Why does marginal cost decrease and then increase?

Marginal Cost. Marginal Cost is the increase in cost caused by producing one more unit of the good. At this stage, due to economies of scale and the Law of Diminishing Returns, Marginal Cost falls till it becomes minimum. Then as output rises, the marginal cost increases.

What is the profit or loss at the profit Maximising output?

Total profit is maximized where marginal revenue equals marginal cost. In this example, maximum profit occurs at 4 units of output. A perfectly competitive firm will also find its profit-maximizing level of output where MR = MC.

When sales exceed production in units then profit under?

(b) When unit production is more than sales, profit under absorption costing will be greater then the profit under marginal costing.

When sales and production are same then profit under?

The same amount of profit is reported under absorption costing and marginal costing if the production is equal to sales. The reason is that fixed factory (manufacturing) overheads charged to the period were the same in each case. 3.

Would a profit-maximizing firm continue to operate if the price in the market?

Question: Would a profit-maximizing firm continue to operate if the price in the market fell below its average cost of production in the short run? A. No, a firm should never produce if its price falls below average total cost.

Would a profit-maximizing firm continue to operate if the price in the market fell below its average cost of production in the short run?

Yes, firms should keep producing until price falls below marginal cost. The graph on the right shows the average total cost (ATC), average variable cost (AVC), marginal cost (MC), and marginal revenue (MR) for a firm.

Where does profit maximisation occur in a firm?

Therefore, profit maximisation occurs at the biggest gap between total revenue and total costs. A firm can maximise profits if it produces at an output where marginal revenue (MR) = marginal cost (MC) To understand this principle look at the above diagram. If the firm produces less than Output of 5, MR is greater than MC.

Can you sell a product if your marginal cost is lower?

Ofcourse you do not want to make a loss by selling a product, so you will only sell products as long as your marginal cost is lower than the price. Or, untill they are equal. Note that this is not a sufficient condition, an agent will only produce if this given price is higher than its average costs.

What happens to marginal revenue when marginal cost changes?

Marginal cost only changes with changes in variable cost. Therefore, marginal revenue will continue to be equal to marginal cost and the firm will not change its quantity to maximize its profit. A profit-maximizing firm is currently producing a quantity at which price is less than average variable cost.

What is the reason for the marginal cost logic?

The reason for the marginal cost logic is simple. Remember that the market price is determined not only by how much you sell, but by how much the rest of the market sells. If the market price were greater than marginal cost, it means somebody could sell an additional fraction of a pizza and still make money off of the sale.