Zoe's Bakery operates in a perfectly competitive industry.When the market price of iced cupcakes is $5,the profit-maximizing output level is 150 cupcakes.Her average total cost is $4,and her average variable cost is $3.Zoe's marginal cost is _____,and her short-run profits are _____.

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the profit-maximizing output level is where the price equals the marginal cost (P=MC), so Zoe's marginal cost is $5. Her short-run profits are calculated as (Price - Average Total Cost) * Quantity = ($5 - $4) * 150 = $150.

Zoe's Bakery Operates in a Perfectly Competitive Industry