Widgets R Us,which is a price-taking firm,is currently producing 250 units of output.The market price is $3 per unit,the marginal cost of the 250th unit is $2.75,average total cost is $3.50 per unit,and average variable cost is $2.50 per unit.What advice should you give Widgets R Us?

Question

Quizplus · Accepted Answer

Since the marginal cost of producing the 250th unit ($2.75) is less than the market price ($3), Widgets R Us should increase output to reduce losses. This is because producing another unit would add more to revenue than to costs, thus reducing losses.

Widgets R Us,which Is a Price-Taking Firm,is Currently Producing 250