Asked by Victoria Archie on Jul 16, 2024
Verified
At its current level of production a profit-maximizing firm in a competitive market receives $12.50 for each unit it produces and faces an average total cost of $10. At the market price of $12.50 per unit, the firm's marginal cost curve crosses the marginal revenue curve at an output level of 1,000 units. What is the firm's current profit? What is likely to occur in this market and why?
Marginal Cost
Marginal cost is the additional cost incurred from producing one extra unit of a good or service, an important concept in economics for determining optimal production levels.
Average Total Cost
The total cost of production (fixed and variable costs combined) divided by the quantity of output, a key factor in pricing and profitability analyses.
Marginal Revenue
The additional income generated from selling one more unit of a product or service.
- Calculate economic profits or losses for firms within competitive markets.
Verified Answer
KP
Kelly PesciottaJul 20, 2024
Final Answer :
Profit can be calculated as (P-ATC)xQ. ($12.50-10)x1,000 = $2,500. Firms are likely to enter this market because existing firms are earning economic profits.
Learning Objectives
- Calculate economic profits or losses for firms within competitive markets.