Question #25067

Output (Q) = 5000 pounds
Price (P) = $5.00 per pound
Average variable cost (AVC) = $4.00
Marginal cost (MC) = $4.25
Average total cost (ATC) = $4.50
If the firm in a purely competitive market, should the firm increase, decrease or not produce the output? Why?
How should the firm determine the optimal level of output?

Expert's answer

To maximize its profits the firm should reach the equality MR = MC = P

Its P > MC, 5 > 4.25, so it should increase its output.

As its P > ATC, it is profitable and should increase its output to maximize profit.

How should the firm determine the optimal level of output?

Output (Q) = 5000 pounds

Price (P) = $5.00 per pound

Average variable cost (AVC) = $4.00

Marginal cost (MC) = $4.25

Average total cost (ATC) = $4.50

Answer:

To maximize its profits the firm should reach the equality MR = MC = P

Its P > MC, 5 > 4.25, so it should increase its output to the point, where P = MR = MC = 5.

Its P > MC, 5 > 4.25, so it should increase its output.

As its P > ATC, it is profitable and should increase its output to maximize profit.

How should the firm determine the optimal level of output?

Output (Q) = 5000 pounds

Price (P) = $5.00 per pound

Average variable cost (AVC) = $4.00

Marginal cost (MC) = $4.25

Average total cost (ATC) = $4.50

Answer:

To maximize its profits the firm should reach the equality MR = MC = P

Its P > MC, 5 > 4.25, so it should increase its output to the point, where P = MR = MC = 5.

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