Suppose a perfectly competitive firm faces the following cost and revenue conditions: ATC = $25.50; AVC = $20.50; MC = $25.50; MR = $28.50. The firm should

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The firm should produce where MR = MC, which is at the output level where P = MR = $28.50. Since the AVC is less than $28.50, the firm should continue to produce in the short run. However, since the firm is making a profit when producing at the output level, it should increase output to maximize profits. Therefore, the firm should increase output.

Suppose a Perfectly Competitive Firm Faces the Following Cost and Revenue