Asked by Zeyka Strandzheva on Jul 25, 2024
Verified
A competitive firm currently produces and sells 500 units of output. Its total revenue is $6,000; the marginal cost of producing the 500th unit of output is $14.50; and the average total cost of producing the 500th unit of output is $9.50. Is the firm maximizing its profit, or should it increase or decrease output in order to increase its profit?
Marginal Cost
The increase or decrease in the total cost that arises when the quantity produced is incremented by one unit.
Average Total Cost
The total cost of production (fixed and variable costs combined) divided by the total quantity produced.
- Understand the significance and outcomes of average and marginal costs in the operations of a firm.
- Investigate the strategy formulation for production and sales among competitive companies during the short run period.
Verified Answer
CD
Chanese DelancyJul 26, 2024
Final Answer :
For this firm, price = marginal revenue = $12. Since marginal cost exceeds marginal revenue, the firm should decrease its output in order to increase its profit.
Learning Objectives
- Understand the significance and outcomes of average and marginal costs in the operations of a firm.
- Investigate the strategy formulation for production and sales among competitive companies during the short run period.