Use the following to answer questions below:

-A perfectly competitive firm is selling 300 units of output per week at a price of $100. Average total cost is $94, average variable cost is $89, and marginal cost is $97. From this information, it is clear that the firm

Question

Use the following to answer questions below:
 
-A perfectly competitive firm is selling 300 units of output per week at a price of $100. Average total cost is $94, average variable cost is $89, and marginal cost is $97. From this information, it is clear that the firm

Quizplus · Accepted Answer

The firm's marginal cost ($97) is less than the price ($100), indicating it could increase profit by producing more until marginal cost equals price. However, since the average total cost ($94) is less than the price, the firm is already making a profit. The correct action to maximize profit depends on the relationship between marginal cost and marginal revenue (price in perfect competition), not on the relationship described. The error in my explanation suggests a misunderstanding. Given the correct understanding that when marginal cost is less than the price, a firm should produce more, none of the provided options accurately reflects the best action for the firm based on the given costs and price. The correct interpretation should be that the firm can increase its profit by producing more, as this would align marginal cost with the price, contradicting the initial incorrect explanation provided.

Use the Following to Answer Questions Below