Mbeya cement company, which has a rising short run marginal cost curve is currently
operating at a loss. Mbeya cement company'schief 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: Your explanations should be supp
roted by economic theory.
Yes, the chief executive officer of Mbeya cement company should listen to the chief economist. This is because the chief economist's advice is supported by economic theory. According to economic theory, when a firm has a rising marginal cost curve, it is not profitable to increase output beyond the point where marginal cost equals marginal revenue. This is because any additional output will result in a higher marginal cost, which will lead to a decrease in profits. Therefore, if Mbeya cement company increases its output, it will likely end up with a bigger loss on a higher volume.