9. A competitive firm that produces 500 units of widgets in which its marginal revenue is...

9. A competitive firm that produces 500 units of widgets in which its marginal revenue is $50 and its marginal cost is $40 and they are making $40,000 in profits and the profit maximizing level of output is 600 units of widgets where marginal revenue and marginal cost are equal at $50 and profits are $80,000. The firm is currently producing 500 units of widgets but wants to reach the profit maximizing level of output of producing 600 units of widgets. As an economist, what would you advise the firm to do?

a. produce more widgets.

b. produce less widgets.

c. do nothing

Solutions

Expert Solution

The marginal revenue is $50 at 500 units and 600 units therefore it has to be observed that the marginal revenue is constant which means it is a perfectly competitive firm and the marginal cost at 500 units is $40 and in order to equal the marginal revenue which is the profit maximizing point the firm should increase production because marginal cost is an increasing curve therefore as an economist I would suggest to increase production

Therefore (a) is the answer to this question

Rahul Sunny answered 1 year ago

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