Asked by Erick Varela on Jul 15, 2024
Verified
Assume for a competitive firm that MC = AVC at $22, MC = ATC at $30, and MC = MR at $35. This firm will
A) realize a profit of $13 per unit of output.
B) minimize its losses by producing in the short run.
C) maximize its profit by producing in the short run.
D) shut down in the short run.
Marginal Cost (MC)
Marginal Cost, abbreviated as MC, refers to the increase in total production cost that arises from producing an additional unit of output, emphasizing the concept of optimizing production levels.
Average Total Cost (ATC)
The total cost divided by the quantity of output produced, representing the per-unit cost of production.
Marginal Revenue (MR)
The additional financial gain a firm secures by selling one more unit of its product or service.
- Examine the determination of pricing and output choices within entirely competitive markets.
- Determine the scenarios where a business achieves peak profitability or lowest losses during a brief period.
Verified Answer
KG
Kurderrious GreenJul 21, 2024
Final Answer :
C
Explanation :
The firm will maximize its profit by producing in the short run because the marginal cost (MC) of producing an additional unit is equal to the marginal revenue (MR) from selling that unit at $35. This is the condition for profit maximization for a competitive firm. The information about MC = AVC and MC = ATC at lower prices is not directly relevant to the decision to produce, as long as MC = MR.
Learning Objectives
- Examine the determination of pricing and output choices within entirely competitive markets.
- Determine the scenarios where a business achieves peak profitability or lowest losses during a brief period.