Question

Steve is an oyster farmer and the world oyster market is perfectly competitive.

The market price is ​$17 a crate. Steve sells 300 crates a week and his marginal cost is ​$19 a crate.

The market price falls to ​$12 a crate​, and Steve cuts his output to 188 crates a week.

Steve's average variable cost and marginal cost fall to ​$12 a crate.

Steve is​ ______.

A.

maximizing profit and he is making an economic profit

B.

not maximizing profit because he has cut his oyster production

C.

maximizing profit and he is incurring an economic loss

D.

not maximizing profit because marginal revenue does not equal marginal cost

E.

not maximizing profit because he is incurring an economic loss

Answer 1

"A"

As the price of the oyster is $12, and the marginal cost is also the same Steve is maximizing the profit by producing 188 crate. The answer is "A", for a perfect market the firm will be maximising profit when they are producing at P=MC.