In a competitive market, the market-determined price is $60. For a typical firm
ID: 1242816 • Letter: I
Question
In a competitive market, the market-determined price is $60. For a typical firm producing 100 units of output, short-run marginal cost is constant at $65, average total cost is $95, and average fixed cost is $30. Is this firm making the profit-maximizing decision? If not, what should it do? No, it is not making the profit maximizing decision. In the short run, it should reduce its rate of production until its marginal cost is equal to $60. Yes, it is making the profit-maximizing decision. No, it is not making the profit maximizing decision. In the short run, it should increase its rate of production until its marginal cost is equal to $60. No, the firm is not making the profit maximizing decision. It should shut down in the short run to minimize losses.Explanation / Answer
Producing 100 units will result in a loss of : (60 - 65) * 100 - 100 = 600 loss The firm should increase its production to reduce its average fixed cost to minimum. Though it is not able to make any profit after that also, then the firm should either shutdown or wait for some other firms to exist in the long run if it has that capacity and power. If you need any more assistance then please do comment me out! I will be glad to help you out on it.