Which of the following is most likely to occur if the firm increases production beyond 10 units?

Question

BlackTom AI · Accepted Answer

Analyzing the graph and the scenario, we consider what happens if the firm increases production beyond 10 units.
Option 1: Consumers would be willing to purchase more than 10 units at the price of $20 per unit. This statement depends on the demand curve at that price. The graph shows a downward-sloping demand, meaning at a higher quantity the price people are willing to pay tends to fall, not stay at $20. So this option is unlikely.
Option 2: The firm would have to lower its price to sell more than 10 units. Since the demand curve is downward-sloping, to increase quantity sold beyond 10, the firm must lower price to attract additional buyers. This aligns with basic price-quantity relationships shown in the diagram.
Option 3: The firm’s average cost of production would initially increase. The ATC curve is U-shaped, and beyond the existing point, marginal costs typically rise as output expands, which tends to push ATC upward after a point. However, the question asks what is most likely to occur when production goes beyond 10 units, and simply increasing output does not guarantee an immediate ATC rise at the exact threshold without more data. This could be true in some segments but is not as directly implied as the price-cut necessity.
Option 4: The firm’s profits would increase. Profit depends on price minus average cost times quantity. If increasing output requires lowering price (as in option 2) and ATC is rising or not falling rapidly, profits may not increase and could fall. Therefore this is not the most likely outcome.
Option 5: The firm would definitely experience a loss. The graph does not indicate an unavoidable loss merely from expanding output beyond 10 units; it depends on costs and prices. Without evidence of price falling below average cost, a definite loss cannot be asserted.
Overall, the most directly supported implication of increasing production beyond 10 units, given the downward-sloping demand, is that the firm would have to lower its price to sell more than 10 units. This aligns with the basic supply/demand relationship depicted in the graph.

AP Economics-Hillebrand AP Microeconomics Sem 1 Exam 2025 - Requires Respondus LockDown Browser

Which of the following is most likely to occur if the firm increases production beyond 10 units?

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