The market price for wallets is $20. Your technology is such that at your most efficient production point, the average total cost of producing a wallet is $2.50. Your manager runs into your office and shouts, "Boss!!! Average costs are rising!! Average costs are rising!!" To make a profit-maximizing decision, you should:

Question

Quizplus · Accepted Answer

In a profit-maximizing scenario, the key factor to consider is the marginal cost, which is the cost of producing one additional unit. If the marginal cost is less than the market price, it is still profitable to produce more units. The average total cost is less relevant in the decision to produce additional units.

The Market Price for Wallets Is $20