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A manager makes a statement that output should be expanded as long as average revenue exceeds...

A manager makes a statement that output should be expanded as long as average revenue exceeds average cost. Does this strategy makes sense? Explain.


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Answer #1

A manager makes a statement that output should be expanded as long as average revenue exceeds average cost. It is correct and profit can be earned by the manager.

The reason is that if AC is greater or exceeds to AR than there will be loss and output cannot be expanded. Further, if AR = AC then , it will be a situation of breakeven point. Breakeven point means no loss and no profit.

But when AR exceeds than Average cost then profits can be earned and it will be profitable to expand the output .

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