A firm is currently producing 100 units of output per day. The manager reports to the owner that producing the 100th unit costs the firm $5. The firm can sell the 100th unit for $5. The firm should continue to produce 100 units in order to maximize its profits (or minimize its losses).

Question

Quizplus · Accepted Answer

Producing the 100th unit at a cost of $5 and selling it for $5 means the firm is covering the cost of producing that unit without making a loss or profit on it. Therefore, stopping before the 100th unit would mean forgoing potential revenue that covers the cost, and producing more could incur losses if additional units cost more to produce than they can be sold for. Thus, producing 100 units is a decision that aligns with maximizing profits or minimizing losses, assuming the cost and revenue structure for units beyond the 100th changes unfavorably.

A Firm Is Currently Producing 100 Units of Output Per