Mbeya cement company, which has a rising short-run marginal cost curve is currently operating at a loss. Mbeya cement company's chief economist says that if the price rises a little, the output should not be increased because, if its marginal cost would rise and the company would end up with a bigger loss on a higher volume. Should the chief executive officer of Mbeya cement company listen to the chief economist? Why or why not NB: not NB: Your explanations should be supposed with a graph for more detail.
The chief executive officer of Mbeya cement company should not listen to the chief economist. This is because the chief economist's advice is based on the assumption that the company's marginal cost curve is rising. However, this is not necessarily true.
The chief economist's advice is based on the assumption that the company's marginal cost curve is rising. This means that as the company increases its output, its marginal cost increases. This is illustrated in the graph below.
However, this is not necessarily true. The company's marginal cost curve could be flat or even decreasing. In this case, increasing the price would not necessarily lead to a bigger loss on a higher volume. In fact, it could lead to a lower loss on a higher volume.
Therefore, the chief executive officer of Mbeya cement company should not listen to the chief economist. The chief executive officer should analyze the company's marginal cost curve to determine the best course of action.