Question

In: Economics

Assume that price is greater than average variable cost. If a perfectly competitive seller is producing...

Assume that price is greater than average variable cost. If a perfectly competitive seller is producing at an output where price is​ $11 and the marginal cost is​ $14.54 (along the​ upward-sloping portion of the MC​ curve), then to maximize profits the firm should  

A.

continue producing at the current output.

B.

produce a smaller level of output.  

C.

produce a larger level of output.  

D.

not enough information given to answer the question.

Solutions

Expert Solution

Ans.- produce a smaller level of output.

Here, P=MR=11 but MC=14.54. Here we have MR<MC, so smaller level of output should be produced to maximize profits.

If MR>MC,then larger level of output should be produced to maximize profits.

If MR=MC, output shouldn't be changed since firm is already maximizing profit.

Rahul Sunny answered 2 years ago
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