A firm sells a product in a perfectly competitive market. The marginal cost of the product at the current output level of 1,000 units is $2.50. The minimum possible average variable cost is $2. The market price of the product is $2.50. what should firm do To maximize profits?

Question

Vaughn Wallace

Business

13 January, 16:09

A firm sells a product in a perfectly competitive market. The marginal cost of the product at the current output level of 1,000 units is $2.50. The minimum possible average variable cost is $2. The market price of the product is $2.50. what should firm do To maximize profits?

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Answers (1)

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Karly Owens · Answer 1

The correct answer is "Continue producing 1000 units"

Explanation:

(In a perfect market)

When the price is = marginal cost. This means that if you increase your production, the benefits-profits will be the same as if you produce the same quantity.

When the Price > Marginal cost, means that consumers demand more for that good, so the producer has an incentive to increase the supply

When the Price < Marginal cost, means that production is higher than the consumer's demand. This is an incentive to decrease the supply.

For this case, the best option is to continue producing the same quantity of units, 1000 units