Question

A firm sells a product in a perfectly competitive market. The marginal cost of the product at the current output level of 200 units is $4. The minimum possible average variable cost is $3.50. The market price of the product is $3. To maximize profits or minimize losses, the firm should ____________.
Multiple Choice
a) continue producing 200 units.
b) decrease production to less than 200 units.
c) increase production to more than 200 units.
d) shut down.

Answer 1

To maximize profits or minimize losses, the firm should continue producing 200 units.

Explanation:

The business also generates at the production price where gross profits and marginal costs are comparable. It is the advantage of the firm-maximizing or losing-minimizing the amount of production.

Benefit or loss can be determined by calculating the difference between the price as well as the overall total cost by the amount of production.

The general theory is that the business maximizes income by generating the quantity of product whereby marginal revenue = marginal cost. In order to maximize income, the organization will expand the utilization of the input "to the extent that the gross sales output of the production is equal to its marginal cost."