Mbeya cement company which has arising short run marginal cost curve is currently operating at loss. Mbeya cement company chief economist says that if the price rises a little the output should not be increased because if it's marginal cost will rise and the company will end up with a big loss on higher volume. Explain with graphs

Answer 1

The graph below illustrates the situation of Mbeya Cement Company. The horizontal axis represents the quantity of output and the vertical axis represents the price. The blue line represents the demand curve and the red line represents the marginal cost curve.

The demand curve shows that the price of the cement is inversely related to the quantity demanded. As the quantity of cement increases, the price decreases.

The marginal cost curve shows that the cost of producing one additional unit of cement increases as the quantity of cement produced increases. This is because of the fixed costs associated with producing cement, such as the cost of raw materials, labor, and energy.

The company is currently operating at a loss because the price of the cement is lower than the marginal cost of producing it. If the price of the cement were to increase, the company would still be operating at a loss because the marginal cost of producing the cement would still be higher than the price. Therefore, increasing the price would not increase the output and the company would still be operating at a loss.