If the market price is $5 and you are currently producing at a level where average total cost is $3 and falling, you should:

Question

Quizplus · Accepted Answer

To maximize profits, a producer should produce where marginal revenue (MR) equals marginal cost (MC). As long as the market price is above the average variable cost (which is implied by the fact that the average total cost is falling), the producer should continue to produce in the short run. Therefore, the best choice is to produce where MR = MC.

If the Market Price Is $5 and You Are Currently