Asked by Angelstar Kasper on Jun 12, 2024
Verified
A competitive firm currently produces and sells 500 units of output. Its total revenue is $3,500; the marginal cost of producing the 500th unit of output is $5.75; and the average total cost of producing the 500th unit of output is $4.00. Is the firm maximizing its profit, or should it increase or decrease output in order to increase its profit?
Marginal Cost
The additional cost incurred by producing one more unit of a product or service, important for decision-making in pricing and production levels.
Average Total Cost
The total cost of production divided by the quantity of output produced, representing the per-unit cost of production.
Maximizing Profit
The process by which a company determines the price and output level that generates the maximum amount of profit.
- Illuminate the strategy determination process for firms in perfectly competitive markets concerning their production and operating conditions.
- Evaluate and expound on the sum of revenues and profits from given sales and cost specifics for a firm in an industry characterized by competition.
Verified Answer
MM
Megan MattsonJun 13, 2024
Final Answer :
For this firm, price = marginal revenue = $7. Since marginal revenue exceeds marginal cost, the firm should increase its output in order to increase its profit.
Learning Objectives
- Illuminate the strategy determination process for firms in perfectly competitive markets concerning their production and operating conditions.
- Evaluate and expound on the sum of revenues and profits from given sales and cost specifics for a firm in an industry characterized by competition.