In a competitive market,

In a competitive market,

In a competitive market, the market-determined price is $25. For a typical firm producing 10,000 units of output, the firm’s average cost reaches its minimum value of $25. Is this firm making the profit-maximizing decision? If not, what should the firm do? No, it is not making the profit-maximizing decision. In the short run, it should reduce its rate of production because its marginal cost is not equal to $25. 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 because its marginal cost is not equal to $25. No, it is not making the profit-maximizing decision. In the short run, it should reduce its rate of production until its average variable cost is equal to $12.

%d bloggers like this: