Scenario 14-4
The information below applies to a competitive firm that sells its output for $40 per unit.
• When the firm produces and sells 150 units of output, its average total cost is $24.50.
• When the firm produces and sells 151 units of output, its average total cost is $24.55.
-Refer to Scenario 14-4. Suppose the firm is currently producing and selling 150 units of output. Should the firm increase its output to 151 units?
A)Yes, because the marginal revenue exceeds the marginal cost.
B)Yes, because the marginal revenue exceeds the average total cost.
C)No, because the marginal cost exceeds the marginal revenue.
D)No, because the average total cost exceeds the marginal revenue.

Question

Quizplus · Accepted Answer

The marginal revenue is $40 (price per unit), and the marginal cost of producing the 151st unit is $24.55 - $24.50 = $0.05. Since the marginal revenue ($40) exceeds the marginal cost ($0.05), the firm should increase its output.

Scenario 14-4 The Information Below Applies to a Competitive Firm That Sells