Question

A baseball manufacturer is currently producing 10,000 baseballs. At this production level, marginal cost is $2.50 and average total cost is $2.00. Baseballs sell for $3.00 at this production level, and marginal revenue is $2.25. From this information, we can conclude that

Answer 1

Answer:

The baseball manufacturer should reduce his production to maximize profits

Explanation:

To see why we can use a standard cost curve plots, like the one attached.

At the production level Q=10,000 the Marginal cost (2.50) is above the average total cost (2.00), that means that production is to the right of the optimal. We can also infer from the  problem that the Marginal Revenue (2.25) is less that the Marginal Cost (2.50

Remember that producer maximize at the point where Marginal Revenue equals Marginal Cost and this is equal to the minimum of average total cost.

To get to the point where Marginal Cost= Min Av Total Cost production should move to the left as shown in the plot