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    In a competitive market, the market-determined price is $25

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    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?
    Question 8 answers

    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.

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    Solution Preview

    The trick to this one is in the cost curves. Recall that the average cost curve intersects the marginal cost curve at its minimum. Because of this, marginal revenue is equal to ...

    Solution Summary

    The competitive markets for market-determined price is determined.

    $2.19