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26 January, 18:36

A competitive firm currently produces and sells 500 units of output. Its total revenue is $3,500; the marginal cost of producing the 500th unit of output is $5.75; and the average total cost of producing the 500th unit of output is $4.00. Is the firm maximizing its profit, or should it increase or decrease output in order to increase its profit?

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  1. 26 January, 19:03
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    Answer: Reduce output

    Explanation: Profit = Total Revenue - Total Costs

    Therefore, profit maximization occurs therefore, profit maximization occurs at the most significant gap or the biggest difference between the total revenue and the total cost.

    TC = AC*Q = $4*500 = $2,000

    Theoretically, profit maximization occurs where MR = MC

    From the forgoing, producing an extra unit will increase the cost of the company thereby reducing profit.

    The company should reduced output to around 499 units or less
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Home » Business » A competitive firm currently produces and sells 500 units of output. Its total revenue is $3,500; the marginal cost of producing the 500th unit of output is $5.75; and the average total cost of producing the 500th unit of output is $4.00.
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