Winonas Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winonas...

Winonas Fudge Shoppe is maximizing profits by producing 1,000 pounds of fudge per day. If Winonas fixed d Costs unexpectedly increase and the market price remains constant, then the short run profit-maximizing level of 00 output n

Select one

a, is less than 1,000 pounds.

b. is still 1,000 pounds.

c. is more than 1,000 pounds

d. becomes zero.

Expert Solution

Profit maximization occurs where Marginal Revenue = Marginal Costs .

Here fixed costs are changing . Fixed costs in the short run should be considered as sunk costs . So they should not be taken into consideration while making short run profit maximizing output decisions . We know that MC curve does not depend on fixed costs , it depends on changes in variable costs .

Since the market price is same as before , so MR does not change . Hence MR = MC at the same level .

Answer : b) is still 1,000 pounds .

Rahul Sunny answered 2 years ago

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