Scenario 14-2
Assume a certain firm is producing Q = 1,000 units of output. At Q = 1,000, the firm's marginal cost equals $20 and its average total cost equals $25. The firm sells its output for $30 per unit.
-Refer to Scenario 14-2. To maximize its profit, the firm should
A)increase its output.
B)continue to produce 1,000 units.
C)decrease its output but continue to produce.
D)shut down.

Question

Quizplus · Accepted Answer

To maximize profit, the firm should produce where marginal revenue equals marginal cost. In this case, since the selling price per unit is $30 and the marginal cost is $20, the firm can still earn a profit by increasing its output and selling more units. Therefore, the best choice is to increase its output.

Scenario 14-2 Assume a Certain Firm Is Producing Q = 1,000 Units