Assume that marginal revenue equals rising marginal cost at 100 units of output. At this output level, a profit-maximizing firm's total fixed cost is $600 and its total variable cost is $400. If the price of the product is $8 per unit, the firm should produce

Question

Quizplus · Accepted Answer

When marginal revenue equals rising marginal cost, the firm has reached the profit-maximizing level of output. In this case, that output level is 100 units.

To determine whether the firm should produce at this level, we need to compare the price ($8) to the firm's average variable cost.

Average variable cost = Total variable cost / Output 
= $400 / 100 units 
= $4 per unit

Since the price ($8) is greater than the average variable cost ($4), the firm will earn a positive profit per unit. Therefore, the firm should produce 100 units of output to maximize profits.

Assume That Marginal Revenue Equals Rising Marginal Cost at 100